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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                   ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

                          COMMISSION FILE NO.: 0-26744

                               PATRIOT BANK CORP.
              -----------------------------------------------------
             (Exact name of Registrant as specified in its charter)

                 PENNSYLVANIA                     23-2820537
                 ------------                     ----------
        (State or other jurisdiction of        (I.R.S. Employer
        incorporation or organization)        Identification No.)

       HIGH AND HANOVER STREETS, POTTSTOWN, PENNSYLVANIA    19464
       -------------------------------------------------    -----
            (Address of principal executive offices)      (Zip Code)

               REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
                                 (610) 323-1500

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                           Common Stock, no par value
                                (Title of class)

 The registrant (1) has filed all reports required to be filed by Section 13 or
  15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
  (or for such shorter period that the registrant was required to file such
 reports), and (2) has been subject to such filing requirements for the past 90
                               days. Yes X . No   .
                                        ---    ---

 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
  of Regulation S-K is not contained herein, and will not be contained, to the
     best of the registrant's knowledge, in definitive proxy or information
    statements incorporated by reference in Part III of this Form 10-K or any
                        amendment to this Form 10-K. [ ]

  The aggregate market value of the voting stock held by non-affiliates of the
    registrant, i.e., persons other than directors and executive officers of
     the registrant is $80,382,402 and is based upon the last sales price of
    $12.70 per share as quoted on The Nasdaq Stock Market for March 4, 2002.

 As of March 4, 2002, the Registrant had 6,329,323 shares outstanding
                          (excluding treasury shares).

                       DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the Registrant's definitive Proxy Statement for the 2002 Annual
Meeting of Stockholders are incorporated by reference into Part III of this Form
                                     10-K.

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                                      INDEX

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PART I

Item 1.   Business.......................................................................................   1

Item 2.   Properties.....................................................................................   8

Item 3.   Legal Proceedings..............................................................................   8

Item 4.   Submission of Matters to a Vote of Security Holders............................................   8

Item 4A.  Executive Officers of the Registrant...........................................................   8

PART II

Item 5.   Market for Registrant's Common Equity and Related Stockholder Matters..........................   9

Item 6.   Selected Financial Data........................................................................  10

Item 7.   Management's Discussion and Analysis of Financial Condition and Results of
          Operations.....................................................................................  13

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.....................................  35

Item 8.   Financial Statements and Supplementary Data....................................................  35

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial
          Disclosure.....................................................................................  71

PART III

Item 10.  Directors and Executive Officers of the Registrant.............................................  71

Item 11.  Executive Compensation.........................................................................  71

Item 12.  Security Ownership of Certain Beneficial Owners and Management.................................  71

Item 13.  Certain Relationships and Related Transactions.................................................  71

PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................  72

SIGNATURES...............................................................................................  73
</TABLE>

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                PART I

ITEM 1.  BUSINESS

GENERAL

Patriot Bank Corp. (the "Company") is a Pennsylvania corporation and is the
holding company for Patriot Bank (the "Bank") and Patriot Investment Company
("PIC"). The Company is a bank holding company and is subject to regulation by
the Board of Governors of the Federal Reserve System (the "FRB"). Originally
organized as a Delaware corporation, the Company became a Pennsylvania
corporation as a result of its consolidation with First Lehigh Corporation on
January 22, 1999. The Company's executive offices are located at the corporate
offices of the Bank at High and Hanover Streets, Pottstown, Pennsylvania 19464.

The Bank was founded in 1905. In 1991, the Bank's predecessor converted from a
federally-chartered mutual savings bank to a Pennsylvania-chartered mutual
savings bank and changed its name to Patriot Savings Bank. In August 1995, the
Bank converted from a Pennsylvania-chartered mutual savings bank to a
federally-chartered mutual savings bank. On December 1, 1995, the Company
acquired the Bank as part of the Bank's conversion from a mutual to stock form
of ownership (the "Conversion"). In connection with the Conversion, the Bank
changed its name to Patriot Bank. On May 23, 1997, the Bank converted to a
Pennsylvania-chartered commercial bank. The Bank conducts business through its
network of 17 community banking offices located in Montgomery, Berks, Chester,
Lehigh and Northampton counties, Pennsylvania. As a result of its acquisition of
First Lehigh Bank, the acquired deposits are insured by the Bank Insurance Fund
("BIF") administered by the FDIC, the majority of the deposits were related to
deposits held by Patriot as a federal savings bank and are insured by the
Savings Association Insurance Fund ("SAIF"). At December 31, 2001, the Bank had
total assets of $1,009 million, deposits of $534 million and stockholder's
equity of $78 million.

The Bank is a community-oriented financial services provider whose business
primarily consists of attracting deposits from the general public and small
businesses and originating commercial loans and leases, consumer loans, and
mortgage loans in the Bank's market area. The bank also sells non-deposit
investment products to consumers and invests in investment and mortgage-backed
securities. In addition to deposits, the Bank uses advances from the Federal
Home Loan Bank of Pittsburgh (FHLB) and repurchase agreements as sources of
funds.

The Bank's revenues are derived principally from interest and fees on loans and
leases, interest on investment and mortgage-backed securities and other fees and
service charges. Additional revenues are derived from the sale of certain
leases, mortgage loans and investments as well as the sale of non-deposit
investment products to consumers. The Bank's primary sources of funds are
deposits, FHLB advances, repurchase agreements, interest on loans and investment
and mortgage-backed securities and principal repayments on loans and leases, and
investment and mortgage-backed securities.

PIC is a Delaware investment corporation that was incorporated by the Company on
September 10, 1996. Its primary business consists of maintaining an investment
portfolio. At December 31, 2001, PIC had total assets of $858,000 and
stockholder's equity of $858,000.

MARKET AREA AND COMPETITION

The Company is headquartered approximately 45 miles northwest of Philadelphia,
Pennsylvania and its market consists primarily of Montgomery, Berks, Chester,
Lehigh and Northampton counties in Pennsylvania. The segment of the markets
served by the Company are primarily service and industrially oriented and
demographically are comprised of middle income and upper income households.

The Company faces significant competition both in originating loans and
attracting deposits. The Company's competitors are other financial services
providers operating within its primary market area, some of which are larger and
have greater financial resources than the Company. The Company's competition for
loans and deposits comes principally from commercial banks, savings and loan
associations, savings banks, credit unions, and mortgage banking companies (some
of which are subsidiaries of major financial institutions). In addition, the
Company faces increasing competition for deposits from non-bank institutions
such as brokerage firms and insurance firms with products such as money market
funds, mutual funds and annuities. Management considers the Company's


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community-oriented reputation for financial strength, superior customer service,
and personal relationships, convenience and product offerings as a competitive
advantage in attracting and retaining customers.

SUBSIDIARY ACTIVITIES

The Company has two wholly-owned subsidiaries: The Bank and PIC. The Bank has
three wholly-owned subsidiaries: Patriot Commercial Leasing Co., Inc. ("PCLC"),
Patriot Investments and Insurance Company ("PIIC"), and Marathon Management
Company, Inc. ("Marathon"). PCLC is a small-ticket commercial leasing company.
At December 31, 2001, PCLC had total assets of $78,900,000 and generated total
revenues of $6,800,000 for the year ended December 31, 2001. PIIC markets
certain non-deposit investment products. At December 31, 2001, PIIC had total
assets of $458,000 and generated fee income of $283,000 for the year ended
December 31, 2001. Marathon provides title insurance services through a joint
venture partnership. At December 31, 2001, Marathon had total assets of $252,000
and generated fee income of $25,000 for the year ended December 31, 2001.

PERSONNEL

As of December 31, 2001, the Bank had 190 full-time and 13 part-time employees,
none of whom was covered by a collective bargaining agreement. Management
believes that the Bank has good relations with its employees and there are no
pending or threatened labor disputes with its employees.

REGULATION AND SUPERVISION

GENERAL. The Company, as a bank holding company, is required to file certain
reports with, and otherwise comply with the rules and regulations of, the FRB
under the Bank Holding Company Act, as amended (the "BHCA"). In addition, the
activities of Pennsylvania-chartered commercial banks, such as the Bank, are
governed by the Pennsylvania Banking Code and the Federal Deposit Insurance Act
("FDI Act").

The Bank is subject to extensive regulation, examination and supervision by the
Federal Deposit Insurance Corporation (the "FDIC"), and the Pennsylvania
Department of Banking ("PDB"). The Bank is a member of the Federal Home Loan
Bank ("FHLB") System. Certain of the Bank's deposits are insured by the BIF
while most of its deposit accounts are insured by the SAIF. The Bank must file
reports with the PDB and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering into
certain transactions such as mergers with, or acquisitions of, other banking
institutions. The PDB and the FDIC conduct periodic examinations to test the
Bank's safety and soundness and compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulatory requirements and policies, whether by the FRB, the FDIC or the
Congress, could have a material adverse impact on the Company, the Bank and
their operations. Certain of the regulatory requirements applicable to the Bank
and to the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to banking institutions and
their holding companies set forth in this Form 10-K does not purport to be a
complete description of such statutes and regulations and their effects on the
Bank and the Company.

HOLDING COMPANY REGULATION. The Company is a bank holding company registered
under the BHCA. As a bank holding company, the Company's activities and those of
the Bank are limited to the business of banking and activities closely related
or incidental to banking.

The BHCA prohibits a bank holding company, directly or indirectly, or through
one or more subsidiaries, from acquiring more than 5% of the voting stock of
another banking institution or holding company thereof, without prior written
approval of the FRB; acquiring or retaining, with certain exceptions, more than
5% of a nonsubsidiary company engaged in activities other than those permitted
by the BHCA; or acquiring or retaining control of a depository institution that
is not insured by the FDIC.

Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary bank and to commit resources to support the
bank, i.e., to downstream funds to the bank. This support may be required at


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times when, absent such policy, the bank holding company might not otherwise
provide such support. Any capital loans by a bank holding company to its
subsidiary bank are subordinate in right of payment to deposits and to certain
other indebtedness of the bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of its subsidiary bank will be assumed
by the bankruptcy trustee and entitled to a priority of payment.

RECENT LEGISLATION. Landmark legislation in the financial services area was
signed into law by the President on November 12, 1999. The Gramm-Leach-Bliley
Act dramatically changes certain banking laws that have been in effect since the
early part of the 20th century. The most radical changes are that the separation
between banking and the securities businesses mandated by the Glass-Steagall Act
has now been removed, and the provisions of any state law that prohibits
affiliation between banking and insurance entities have been preempted.
Accordingly, the new legislation now permits firms engaged in underwriting and
dealing in securities, and insurance companies, to own banking entities, and
permits bank holding companies (and in some cases, banks) to own securities
firms and insurance companies. The provisions of federal law that preclude
banking entities from engaging in non-financially related activities, such as
manufacturing, have not been changed. For example, a manufacturing company
cannot own a bank and become a bank holding company, and a bank holding company
cannot own a subsidiary that is not engaged in financial activities, as defined
by the regulators.

The new legislation creates a new category of bank holding company called a
"financial holding company." In order to avail itself of the expanded financial
activities permitted under the new law, a bank holding company must notify the
FRB that it elects to be a financial holding company. A bank holding company can
make this election if it, and all its bank subsidiaries, are well capitalized,
well managed, and have at least a satisfactory Community Reinvestment Act
rating, each in accordance with the definitions prescribed by the FRB and the
regulators of the subsidiary banks. Once a bank holding company makes such an
election, and provided that the FRB does not object to such election, the
financial holding company may engage in financial activities (i.e., securities
underwriting, insurance underwriting, and certain other activities that are
financial in nature as determined by the FRB) by simply giving a notice to the
FRB within thirty days after beginning such business or acquiring a company
engaged in such business. This makes the regulatory approval process to engage
in financial activities much more streamlined than it was under prior law.

The Company believes it qualifies to become a financial holding company, but has
not yet determined whether or not it will file to become treated as one. The
Federal Reserve has only recently promulgated rules implementing these
provisions of the new legislation, and the Company may wait to see what the
experience of other companies is under the new rules before it makes an
election.

The new law also permits certain financial activities to be undertaken by a
subsidiary of a national bank. Because the Bank is not a national bank, these
provisions do not apply directly to the Bank. Generally, for financial
activities that are conducted as a principal, such as an underwriter or dealer
holding an inventory, a national bank must be one of the 100 largest national
banks in the United States and have debt that is rated investment grade.
However, smaller national banks may own a securities broker or an insurance
agency, or certain other financial agency entities under the new law. Under
prior law, national banks could only own an insurance agency if it was located
in a town of fewer than 5,000 residents or under certain other conditions. Under
the new law, there is no longer any restriction on where the insurance agency
subsidiary of a national bank is located or does business. As a Pennsylvania
bank, the Bank is permitted under Pennsylvania law to own and operate an
insurance agency without restriction, and could also own and operate a
securities brokerage.

In addition to the foregoing provisions of the new law that make major changes
to the federal banking laws, the new legislation also makes a number of
additions and revisions to numerous federal laws that affect the business of
banking. For example, there is now a federal law on privacy with respect to
customer information held by banks. The federal banking regulators are
authorized to adopt rules regarding privacy for customer information. Banks must
establish a disclosure policy for non-public customer information, disclose the
policy to their customers, and give their customers the opportunity to object to
non-public information being disclosed to a third party. Also, the Community
Reinvestment Act has been amended by the new law to provide that small banks
(those under $250 million in assets) that previously received an "outstanding"
on their last CRA exam will not have to undergo another CRA exam for five years
or for four years if their last exam was "satisfactory." In addition, any CRA
agreement entered into between a bank and a community group must be disclosed,
with both the bank and the group receiving any grants from the bank detailing
the amount of funding provided and what it was used for. The new law also


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requires a bank's policy on fees for transactions at ATM machines for
non-customers to be conspicuously posted on the ATM. A number of other
provisions affecting other general regulatory requirements for banking
institutions were also adopted.

The intent and scope of the Gramm-Leach-Bliley Act is positive for the financial
industry and is an attempt to modernize federal banking laws and make U. S.
institutions competitive with those from other countries. While the legislation
makes significant changes in U. S. banking law, such changes may not directly
affect the Company's business unless it decides to avail itself of new
opportunities available under the new law. The Company does not expect any of
the provisions of the law to have a material adverse effect on its existing
operations or to significantly increase its costs.

Separately from the Gramm-Leach-Bliley Act, Congress is often considering
financial industry legislation. The Company cannot predict how any new
legislation, or new rules adopted by the federal banking agencies, may affect
its business in the future.

CAPITAL REQUIREMENTS. The FRB has adopted risk-based capital guidelines for bank
holding companies, such as the Company. The required minimum ratio of total
capital to risk-weighted assets (including off-balance sheet activities, such as
standby letters of credit) is 8.0%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common stockholders'
equity, noncumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less goodwill. The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance.

In addition to the risk-based capital guidelines, the FRB established minimum
leverage ratio (Tier 1 capital to average total assets) guidelines for bank
holding companies. These guidelines provide for a minimum leverage ratio of 3%
for those bank holding companies which have the highest regulatory examination
ratings and are not contemplating or experiencing significant growth or
expansion. All other bank holding companies are required to maintain a leverage
ratio of at least 1% to 2% above the 3% stated minimum. The Company is in
compliance with these guidelines. The Bank is subject to similar capital
requirements adopted by the FDIC.

The risk-based capital standards are required to take adequate account of
interest rate risk, concentration of credit risk and the risks of
non-traditional activities.

Under the FDIC prompt corrective action regulations, the FDIC is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of undercapitalization.
Generally, a bank is considered "well capitalized" if its ratio of total capital
to risk-weighted assets is at least 10%, its ratio of Tier I (core) capital to
risk-weighted assets is at least 6%, its ratio of core capital to total assets
(tier 1 leverage ratio) is at least 5%, and it is not subject to any order or
directive by the FDIC to meet a specific capital level. A bank generally is
considered "adequately capitalized" if its ratio of total capital to
risk-weighted assets is at least 8%, its ratio of Tier I (core) capital to
risk-weighted assets is at least 4%, and its ratio of core capital to total
assets is at least 4% (3% if the institution receives the highest CAMEL rating).
Patriot bank has voluntarily agreed with its regulators to maintain capital
ratios at least equal to well-capitalized standards and to maintain a tier 1
leverage ratio of at least 6%. A bank that has lower ratios of capital is
categorized as "undercapitalized," "significantly under capitalized," or
"critically undercapitalized." Subject to a narrow exception, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the FDIC within 45 days of the date
a bank receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions and
expansion. The FDIC could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors. At December 31, 2001,
both the Company and the Bank were "well capitalized."

INSURANCE OF DEPOSIT ACCOUNTS. Although most of the deposits of the Bank are
presently insured by the SAIF, certain of its deposits are insured by the BIF
(the deposit insurance fund that covers most commercial bank


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deposits). Both the BIF and the SAIF are statutorily required to maintain a
ratio of reserves to insured deposits of 1.25%. Both the BIF and the SAIF
currently exceed the 1.25% ratio. Recent disclosures from the FDIC have
indicated that they anticipate that the BIF fund will most likely decline below
a 1.25% ratio during the first half of 2002, potentially triggering an increase
in deposit insurance premiums during the second half of 2002. Currently, the
Bank pays minimal deposit insurance premiums; however, those deposit premiums
may increase. The FDIC must assess deposit insurance premiums if the 1.25% ratio
is not met, and may impose premiums on under capitalized or unsafe institutions.

All institutions are assessed for payment of the FICO bonds. Full pro rata
sharing of the FICO payments between BIF and SAIF members began on January 1,
2000. The FDIC resets the FICO assessment rate each calendar quarter. The
current annual rate is $0.182 per each $1,000 of deposits.

Under the FDI Act, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.

LOANS TO ONE BORROWER. Applicable regulations limit the dollar amount of loans
that the Bank may have outstanding to any one borrower, or group of affiliated
borrowers, to 15% of the capital and surplus of the Bank. As of December 31,
2001, this limitation was equal to $11.8 million. There are exceptions from the
limitation for certain secured loans, depending upon the amount and type of
collateral.

LIMITATION ON CAPITAL DISTRIBUTIONS. Dividend payments by the Bank to the
Company are subject to the Pennsylvania Banking Code of 1965 and the FDI Act.
Under the Pennsylvania Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDI Act, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking laws,
the Bank would be limited to approximately $27.4 million of dividends in 2002
plus an additional amount equal to the Bank's net profit for 2002, up to the
date of any such dividend declaration.

State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of the Bank to pay dividends to the Company.

INTERSTATE BANKING. The Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Interstate Banking Law") amended various federal banking laws
to provide for nationwide interstate banking, interstate bank mergers and
interstate branching. The interstate banking provisions allow for the
acquisition by a bank holding company of a bank located in another state.

TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the Company
and its nonbanking subsidiaries) is limited by Sections 23A and 23B of the
Federal Reserve Act ("FRA"). Section 23A limits the aggregate amount of covered
transactions with any individual affiliate to 10% of the capital and surplus of
the Bank. The aggregate amount of covered transactions with all affiliates is
limited to 20% of the Bank's capital and surplus. Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A, and the purchase of low quality assets from affiliates
is generally prohibited. Section 23B generally provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, banks are prohibited from lending to any affiliate that
is engaged in activities that are not permissible for bank holding companies and
no bank may purchase the securities of any affiliate other than a subsidiary.

The Bank's authority to extend credit to executive officers, directors and 10%
shareholders ("insiders"), as well as entities such persons control, is governed
by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder. Among other
things, such loans are required to be made on terms substantially the same as
those offered to unaffiliated individuals and to not involve more than the
normal risk of repayment. There is an exception for loans made pursuant to a
benefit or compensation program that is widely available to all employees of the
institution and does not give preference to insiders over other employees.
Regulation O also places individual and aggregate limits


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on the amount of loans the Bank may make to insiders based, in part, on the
Bank's capital position and requires certain board approval procedures to be
followed.

ENFORCEMENT. Under the FDI Act, the FDIC has primary enforcement responsibility
over state nonmember banks and has the authority to bring actions against the
institution and all institution-affiliated parties, including stockholders, and
any attorneys, appraisers and accountants who knowingly or recklessly
participate in wrongful action likely to have an adverse effect on an insured
institution. Formal enforcement action may range from the issuance of a capital
directive or cease and desist order and removal of officers and/or directors to
institution of receivership or conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases.
Federal law also establishes criminal penalties for certain violations.

STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and soundness
standards that the federal banking agencies use to identify and address problems
at insured depository institutions before capital becomes impaired. The
standards set forth in the Guidelines address internal controls and information
systems; internal audit system; credit underwriting; loan documentation;
interest rate risk exposure; asset growth; and compensation, fees and benefits.
If the appropriate federal banking agency determines that an institution fails
to meet any standard prescribed by the Guidelines, the agency may require the
institution to submit to the agency an acceptable plan to achieve compliance
with the standard, as required by the FDI Act. The final rule establishes
deadlines for the submission and review of such safety and soundness compliance
plans when such plans are required.

FEDERAL RESERVE SYSTEM. FRB regulations require depositary institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). During fiscal 2001, FRB
regulations generally required that reserves be maintained against aggregate
transaction accounts as follows: for accounts aggregating $37.3 million or less
(subject to adjustment by the FRB) the reserve requirement is 3%; and for
accounts aggregating greater than $37.3 million, the reserve requirement is
$1.119 million plus 10% (subject to adjustment by the FRB between 8% and 14%)
against that portion of total transaction accounts in excess of $37.3 million.
The first $5.5 million of otherwise reservable balances (subject to adjustments
by the FRB) were exempted from the reserve requirements. The Bank is in
compliance with the foregoing requirements. The balances maintained to meet the
reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements imposed by the FDIC.

FEDERAL AND STATE TAXATION

FEDERAL TAXATION

GENERAL. The Company and its subsidiaries report their income on a consolidated
basis using the accrual method of accounting and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does not
purport to be a comprehensive description of the tax rules applicable to the
Company. For its 2001 taxable year, the Company is subject to a maximum federal
income tax rate of 34%.

BAD DEBT RESERVES. As a large commercial bank, the Bank is permitted to
recognize bad debt expense based on actual chargeoffs. Prior to its conversion
to a commercial bank in May 1997, the Bank was a thrift institution. For fiscal
years beginning prior to December 31, 1995, thrift institutions which qualified
under certain definitional tests and other conditions of the Internal Revenue
Code of 1986 (the "Code") were permitted to use certain favorable provisions to
calculate their deductions from taxable income for annual additions to their bad
debt reserve. A reserve could be established for bad debts on qualifying real
property loans (generally secured by interests in real property improved or to
be improved) under (i) the Percentage of Taxable Income Method (the "PTI
Method") or (ii) the Experience Method. The reserve for nonqualifying loans was
computed using the Experience Method.

The Small Business Job Protection Act of 1996 (the "1996 Act"), as modified by
the Taxpayer Relief Act of 1997 (the "1997 Act"), requires savings institutions
to recapture (i.e., take into income) certain portions of their


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accumulated bad debt reserves. The 1996 Act repeals the reserve method of
accounting for bad debts effective for tax years beginning after 1995. Thrift
institutions that would be treated as small banks are allowed to utilize the
Experience Method applicable to such institutions, while thrift institutions
that are treated as large banks (those generally exceeding $500 million in
assets) are required to use only the specific charge-off method. Thus, the PTI
Method of accounting for bad debts is no longer available for any financial
institution.

A thrift institution required to change its method of computing reserves for bad
debts will treat such change as a change in method of accounting, initiated by
the taxpayer, and having been made with the consent of the IRS. Any Section
481(a) adjustment required to be taken into income with respect to such change
generally will be taken into income ratably over a six-taxable year period,
beginning with the first taxable year beginning after 1995, subject to the
residential loan requirement.

Under the residential loan requirement provision, the recapture required by the
1996 Act will be suspended for each of two successive taxable years, beginning
with the Bank's current taxable year, in which the Bank originates a minimum of
certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding its current
taxable year.

Under the 1996 Act, for its current and future taxable years, the Bank is
permitted to make additions to its tax bad debt reserves. In addition, since the
Bank's tax bad debt reserves as of December 31, 1987 exceeded its tax bad debt
reserves as of December 31, 1995 it is not required to recapture any income.

DISTRIBUTIONS. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and then
from the Bank's supplemental reserve for losses on loans, to the extent thereof,
and an amount based on the amount distributed (but not in excess of the amount
of such reserves) will be included in the Bank's income. Non-dividend
distributions include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits will not be included in the Bank's income.

The amount of additional taxable income triggered by a non-dividend is an amount
that, when reduced by the tax attributable to the income, is equal to the amount
of the distribution. Thus, if the Bank makes a non-dividend distribution to the
Company, approximately one and one-half times the amount of such distribution
(but not in excess of the amount of such reserves) would be includable in income
for federal income tax purposes, assuming a 35% federal corporate income tax
rate. The Bank does not intend to pay dividends that would result in a recapture
of any portion of its bad debt reserves.

CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code of 1986, as amended
(the "Code") imposes a tax on a corporation's alternative minimum taxable income
("AMTI") at a rate of 20% if such alternative minimum tax ("AMT") exceeds the
income tax the corporation would otherwise pay for the taxable year. The excess
of the tax bad debt reserve deduction using the percentage of taxable income
method over the deduction that would have been allowable under the experience
method is treated as a preference item for purposes of computing the AMTI. Only
90% of AMTI can be offset by net operating loss carryovers. AMTI is increased by
an amount equal to 75% of the amount by which the Bank's adjusted current
earnings exceeds its AMTI (determined without regard to this preference and
prior to reduction for net operating losses). The Bank does not typically expect
to be subject to the AMT.

DIVIDENDS RECEIVED DEDUCTION AND OTHER MATTERS. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company owns more than 20% of the stock of a corporation
distributing a dividend, 80% of any dividends received may be deducted.

STATE TAXATION

COMMONWEALTH OF PENNSYLVANIA. The Bank is subject to a "Bank Shares Tax" which
is imposed on every bank having capital stock located within Pennsylvania. The
Bank Shares Tax is based on the value of the


                                       7
<PAGE>

bank's shares as of the preceding January 1st. The taxable amount is computed by
adding the book value of capital stock paid in, the book value of the surplus
and the book value of undivided profits, and then deducting from that total an
amount equal to the percentage that the book value of the bank's federal
obligations and state obligations bears to the book value of the bank's total
assets. This value is calculated on the basis of the current year and the
preceding five years, but, if a bank has not been in existence for six years,
the taxable amount is computed by adding the value for the number of years that
the bank has been in existence and dividing the resulting sum by that number of
years. The Bank Shares Tax rate is 1.25% of the taxable amount. Banks subject to
the Bank Shares Tax are exempt from all other corporate taxes imposed by
Pennsylvania.

Corporations doing business in Pennsylvania and not subject to Bank Shares Tax
are subject to Pennsylvania Corporate Net Income Tax ("CNIT"). The CNIT is an
annual excise tax and is measured by the Corporation's taxable income as
determined under the Code. When a domestic or foreign corporation's entire
business is not transacted wholly within Pennsylvania, such taxable income must
be allocated and apportioned to determine that portion subject to the CNIT. The
CNIT rate is 9.99%. Pennsylvania also subjects corporations to the Pennsylvania
Capital Stock and Foreign Franchise Tax.

Prior to January 22, 1999, the Company was subject to the Pennsylvania CNIT and
the Pennsylvania Capital Stock and Foreign Franchise Tax because it was a
foreign corporation doing business in Pennsylvania. The Company's Pennsylvania
CNIT was calculated on an unconsolidated basis and adjusted to reflect the
appropriate allocation and apportionment requirements. After January 22, 1999,
the Company became subject to the Pennsylvania Capital Stock Tax and CNIT.

ITEM 2.  PROPERTIES

The Bank has 17 banking offices, four (4) of which are located in Montgomery
County, four (4) of which are located in Berks County, four (4) of which are
located in Lehigh County, four (4) of which are located in Northampton County,
and one (1) of which is located in Chester County, Pennsylvania. The Bank owns 3
and leases 14 of the banking office properties.

ITEM 3.  LEGAL PROCEEDINGS

The Company is a defendant in various lawsuits wherein various amounts are
claimed. In the opinion of the Company's management, these suits should not
result in judgements which, in the aggregate, would have a material adverse
effect on the Company's consolidated financial statements.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 4A.  EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information, including principal occupation during the past five years,
relating to the principal executive officers of the Company, as of March 4,
2002, is set forth below:

Richard A. Elko -- Age 40. Mr. Elko was elected President and Chief Executive
Officer of the Company and the Bank in November 2000. Prior to that Mr. Elko
served as Executive Vice President since 1999 and Chief Financial Officer of the
Company and the Bank from January 1996 to December 1999.

Joni S. Naugle -- Age 43. Ms. Naugle was elected as Executive Vice President and
Chief Operating Officer of the Company and the Bank in February 2001. Prior to
that, Ms. Naugle served as Chief Operating Officer of the Company and the Bank
since December 1998. Prior to that, Ms. Naugle was a Senior Vice President for
Marketing and Retail Sales at Sovereign Bank from 1979 to April 1998 and a
consultant from April 1998 to December 1998.

Kevin R. Pyle -- Age 35. Mr. Pyle was elected as Executive Vice President and
Chief Lending Officer of the Company and the Bank in February 2001. Prior to
that, Mr. Pyle served as Chief Credit Officer of the Bank since March 1996.


                                       8
<PAGE>

James G. Blume -- Age 36. Mr. Blume was elected as Senior Vice President and
Chief Financial Officer of the Company and the Bank in February 2001. Prior to
that, Mr. Blume served as Chief Financial Officer of the Company since December
1999. Prior to that, Mr. Blume served as Controller of the Company and Patriot
Bank since March 1997.



PART II

ITEM 5.     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
            MATTERS

            The Company's common stock is traded in the over-the-counter market
and is quoted on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") National Market System under the symbol "PBIX". At
March 4, 2002, the total number of holders of record of the Company's common
stock was 767.

            The following table sets forth the high and low bid and asked
information of the Company's common stock to the extent available as reported by
NASDAQ.

<TABLE>
<CAPTION>

                               2001                                                        2000
          ---------------------------------------------               ---------------------------------------------

                   Bid                    Asked                                 Bid                   Asked
          ---------------------   ---------------------               ---------------------   ---------------------

Qtr       High         Low         High         Low          Qtr      High           Low      High          Low
---       ----         ---         ----         ---          ---      ----           ---      ----          ---
<S>        <C>          <C>        <C>          <C>         <C>      <C>            <C>      <C>           <C>
1st        8.0000       6.7500      8.1875       7.0000      1st      15.0625        8.3750   15.1875       8.6875

2nd       10.2600       7.5313     10.3200       7.6250      2nd      13.2500        6.6250   13.3750       6.9375

3rd       11.7100       8.9500     11.9000       9.1500      3rd       7.2500        6.5000    7.6250       6.6250

4th       10.7500      10.0000     10.8900      10.1900      4th       6.8750        5.8125    7.0000       5.9375

</TABLE>

            The bid quotations reflect interdealer quotations, do not include
retail markups, markdowns or commissions and may not necessarily represent
actual transactions. The bid information as stated is, to the knowledge of
management of the Company, the best approximate value at the time indicated.

DIVIDEND INFORMATION.

            Dividends on the Company's common stock are generally payable in
February, May, August and November.

            Set forth below are the cash dividends paid by the Company during
2001 and 2000. Such dividends have been adjusted to reflect all stock dividends
paid during such years.

<TABLE>
<CAPTION>
                                                                                         2001                 2000
                                                                                         ----                 ----

<S>                                                                                     <C>                  <C>
            First Quarter ............................................................  $.0925               $.0875
            Second Quarter ...........................................................  $.0925               $.0900
            Third Quarter ............................................................  $.0925               $.0925
            Fourth Quarter ...........................................................  $.0925               $.0925
</TABLE>


            For certain limitations on the ability of the Bank to pay dividends
to the Company, see Part I, Item I "Business -- Regulation and Supervision --
Limitation on Capital Distributions" and Note 18 at Item 8 "Financial Statements
and Supplementary Data" hereof.


                                       9
<PAGE>

ITEM 6.     SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

The selected consolidated financial and other data and management's discussion
and analysis set forth below is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes thereto,
contained elsewhere herein.

<TABLE>
<CAPTION>
                                                                                    AT DECEMBER 31,
                                                     ---------------------------------------------------------------------------
                                                        2001            2000            1999            1998            1997
                                                     -----------     -----------     -----------     -----------     -----------
                                                                                    (in thousands)
<S>                                                  <C>             <C>             <C>             <C>             <C>
Selected Financial Condition Data:
Total assets......................................   $ 1,010,070     $ 1,124,905     $ 1,129,443      $  980,761      $  852,083
Investment and mortgage-backed securities
     available for sale...........................       247,612          84,889          87,334         386,380         343,125
Investment and mortgage-backed securities held to
     maturity ....................................        43,637         302,489         348,047          29,639          62,516
Loans held for sale...............................         6,652           8,564           4,972           5,576           4,095
Loans and leases receivable.......................       649,139         656,479         628,060         509,080         422,209
Allowance for credit losses.......................        (6,199)         (5,839)         (6,082)         (4,087)         (2,512)
Deposits..........................................       533,863         649,958         502,002         377,796         289,528
Borrowings........................................       405,666         416,837         568,795         549,321         508,884
Stockholders' equity..............................        61,706          51,800          49,768          42,260          46,533
</TABLE>


<TABLE>
<CAPTION>
                                                                            FOR THE YEAR ENDED DECEMBER 31,
                                                     ---------------------------------------------------------------------------
                                                        2001            2000            1999            1998            1997
                                                     -----------     -----------     -----------     -----------     -----------
                                                                                    (in thousands,
                                                                                except per share data)
<S>                                                  <C>             <C>             <C>             <C>             <C>
Selected Operating Data:
Interest income....................................  $    75,850     $    84,143     $    75,544     $    63,107     $    50,249
Interest expense...................................       52,209          61,471          51,510          46,236          35,807
                                                     -----------     -----------     -----------     -----------     -----------

Net interest income before provision for credit
     losses........................................       23,641          22,672          24,034          16,871          14,442
Provision for credit losses........................        2,000           1,125           1,200           1,200             915
                                                     -----------     -----------     -----------     -----------     -----------

Net interest income after provision for credit
     losses........................................       21,641          21,547          22,834          15,671          13,527
Non-interest income................................        7,892           7,124           5,945           3,873           2,330
Non-interest expense ..............................       20,768          26,844          26,402          14,267          11,158
                                                     -----------     -----------     -----------     -----------     -----------

Income before taxes and cumulative effect of
change in accounting principle.....................        8,765           1,827           2,377           5,277           4,699
Income taxes.......................................        2,462            (182)            177           1,222           1,326
Income before cumulative effect of change in
accounting principle...............................  $     6,303     $     2,009     $     2,200     $     4,055     $     3,373
Cumulative effect of change in accounting
principle, net of ($105,000) in income tax.........         (204)           ----            ----            ----            ----
                                                     ===========     ===========     ===========     ===========     ===========
Net income ........................................  $     6,099     $     2,009     $     2,200     $     4,055     $     3,373
                                                     ===========     ===========     ===========     ===========     ===========

Diluted earnings per share.........................  $      1.02     $      0.34     $      0.37     $      0.78     $      0.59
                                                     ===========     ===========     ===========     ===========     ===========
Net income before non-recurring charges (2)........                  $     5,233     $     5,549
                                                                     ===========     ===========
Diluted earnings per share before non-recurring
     charges (2)...................................                  $      0.89     $      0.94
                                                                     ===========     ===========
Cash earnings per share before non-recurring
charges (2)(7).....................................  $      1.30     $      1.17     $      1.20     $      0.92     $      0.71
                                                     ===========     ===========     ===========     ===========     ===========

</TABLE>



                                       10
<PAGE>


SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA, CONTINUED


<TABLE>
<CAPTION>
                                                                                    AT DECEMBER 31,
                                                     ---------------------------------------------------------------------------
                                                        2001            2000            1999            1998            1997
                                                     -----------     -----------     -----------     -----------     -----------
<S>                                                  <C>             <C>             <C>             <C>             <C>
Performance Ratios (1):

Return on average equity............................       10.52%           3.94%           4.00%           8.72%           7.22%
Return on average equity before non-recurring
     charge (2).....................................        ----           10.30           10.10            ----            ----
Cash return on average equity (7)...................       16.91           18.66           12.95           10.27            8.63
Return on average assets............................        0.58            0.17            0.20            0.45            0.49
Return on average assets before non-recurring
     charge (2).....................................        ----            0.45            0.51            ----            ----
Average interest rate spread (3)....................        2.36            2.13            2.32            1.98            2.10
Net interest margin (4).............................        2.50            2.25            2.44            2.01            2.14
Average interest-earning assets to average
     interest bearing liabilities...................      100.47           99.09          100.39          103.72          104.85
Total non-interest expense to  average assets
     before non recurring charge (1)................        1.96            2.32            2.41            1.58            1.56
Dividend payout ratio...............................       36.27          105.70           86.02           35.91           40.31

Regulatory Capital Ratios (5):

Tier 1 capital to average assets ...................        6.45%           5.48%           5.45%           5.37%           7.90%
Tier 1 capital to risk-adjusted assets .............       10.49            9.45            9.39           10.00           12.92
Total risk adjusted capital to risk-adjusted
     assets.........................................       11.54           10.41           10.46           12.46           14.54

Asset Quality Ratios (6):
Non-performing assets as a percent of total
     assets.........................................        0.53%           0.35%           0.15%           0.11%           0.15%
Non-performing loans as a percent of loans
     receivable.....................................        0.76            0.59            0.24            0.21            0.26
Allowance for credit losses as a percent of loans
     receivable.....................................        0.95            0.88            0.96            0.79            0.59
Allowance for credit losses as a percent of
     non-performing assets..........................      116.20          147.82          354.04          362.63          225.90
</TABLE>


                                       11
<PAGE>

SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA, CONTINUED



(1)         All ratios are based on average monthly balances during the
            indicated periods.

(2)         In 1999, a non-recurring after-tax charge of $3,349,000 was recorded
            in connection with an internet initiative. In 2000, non-recurring
            after-tax charges of $3,224,000 were recorded including $1,453,000
            in connection with restructuring of operations, $986,000 of expenses
            incurred by the restructured operations and $785,000 in connection
            with the resignation of Patriot's former President and CEO.

(3)         The average interest rate spread represents the difference between
            the weighted average yield on interest-earning assets and the
            weighted average cost of interest-bearing liabilities and equity.

(4)         The net interest margin represents tax-equivalent net interest
            income as a percent of average interest-earning assets. The amount
            of tax beneficial income for 2001, 2000, and 1999 was $1,365,000,
            $1,401,000 and $1,335,000, respectively

(5)         For definitions and further information relating to regulatory
            capital requirements, see footnote 18 of the consolidated financial
            statements.

(6)         Non-performing assets consist of non-performing loans, real estate
            owned (REO) and other repossessed property. Non-performing loans
            consist of non-accrual loans, while REO consists of real estate
            acquired through foreclosure and real estate acquired by acceptance
            of a deed in lieu of foreclosure. Other repossessed property
            consists of commercial equipment acquired at the termination of a
            lease and repossessed automobiles.

(7)         Cash earnings per share is calculated by the elimination of non-cash
            expenses including goodwill and other intangible amortization, ESOP
            expense, and MRP expense


                                       12
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS

            In addition to historical information, this discussion and analysis
of Patriot Bank Corp. and Subsidiaries (Patriot) contains forward-looking
statements. The forward-looking statements contained in this discussion and
analysis are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Important factors that might cause such a difference include, but
are not limited to, those discussed in the "Management's Discussion and Analysis
of Financial Condition and Results of Operations." Readers are cautioned not to
place undue reliance on these forward-looking statements, which reflect
management's analysis only as of the date of this report. Patriot undertakes no
obligation to publicly revise or update these forward-looking statements to
reflect events or circumstances that arise after the date of this report.

Patriot's financial results include the following significant events:

            CAPITAL TRANSACTIONS. Patriot became a publicly owned company on
December 1, 1995, when it issued 3,769,125 shares of common stock and raised net
proceeds of $36,652,000. On September 22, 1997, and November 21, 1996, Patriot
paid special 20% stock dividends. On May 14, 1998, Patriot distributed a 25%
stock split. For comparative purposes, per share amounts, as presented herein,
have been adjusted to reflect the stock split/dividends. During 1996, 1997, 1998
and 1999 Patriot repurchased 338,000, 1,246,000, 538,000 and 377,000 shares of
its common stock at a cost of $6,892,000, $13,554,000, $2,517,000 and
$4,808,000, respectively. Patriot did not repurchase any shares of its common
stock in 2000 or 2001.

            BANK ACQUISITION. On January 22, 1999, Patriot completed the
acquisition of First Lehigh Corporation ("First Lehigh"), a commercial banking
company with $104,478,000 in total assets and $93,905,000 in total deposits.
Patriot issued 1,640,000 shares of common stock for all the outstanding common
and preferred stock of First Lehigh. The transaction had a total value of
$21,047,000. The acquisition was accounted for as a purchase, and accordingly,
the results of operations of First Lehigh are included in Patriot's consolidated
statement of income from the date of acquisition. At December 31, 2001, Goodwill
and core deposit intangibles arising from the transaction totaled $6,909,281 and
$3,362,367, respectively. During 2001, FASB issued SFAS No. 142. In accordance
with SFAS No. 142, Patriot will continue to amortize the core deposit
intangible, while goodwill will no longer be amortized but be subject to
periodic impairment testing instead.

            LEASING ACQUISITION. On November 6, 1998, Patriot completed its
acquisition of Keystone Financial Leasing Company (KFL). KFL was a small-ticket
commercial leasing company which had total assets of $43,327,000 including lease
receivables of $42,764,000 at the date of acquisition. KFL was purchased for
$6,258,000 in cash plus contingent consideration based upon future revenues of
KFL. The acquisition was accounted for as a purchase. Goodwill arising from the
transaction totaled $2,267,000. In accordance with SFAS No. 142, goodwill will
no longer be amortized but be subject to period impairment testing instead.


                                       13
<PAGE>


      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

            SUMMARY. For the year ended December 31, 2001, Patriot reported net
income of $6,099,000 or $1.02 diluted earnings per share. Patriot adopted SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," as of
January 1, 2001. The cumulative effect of the adoption was a $204,000 decrease
to consolidated income, net of $105,000 of tax benefit. For the year ended
December 31, 2000, Patriot reported net income of $2,009,000 or $.34 diluted
earnings per share. Included in the year 2000 earnings are non-recurring,
after-tax charges totaling $3,224,000 which includes a one time restructuring
charge of $1,453,000, non-recurring expenses of $986,000, both related to the
restructuring of Patriot's mortgage banking operation, and $785,000 related to
the resignation of Patriot's former President and Chief Executive Officer. 2000
core earnings excluding non-recurring charges were $5,233,000 or $.89 diluted
earnings per share. Return on average equity was 10.52% for 2001 and 3.94% for
2000. Excluding the non-recurring charges in 2000, return on average equity was
10.30%.

            NET INTEREST INCOME. Net interest income for 2001 was $23,641,000
compared to $22,672,000 in 2000. The yield on Patriot's interest-earning assets
decreased to 7.68% for the year 2001 compared to 7.82% for 2000. The decrease in
yield on Patriot's interest-earning assets is a result of a decrease in interest
rates. The cost of Patriot's interest-bearing liabilities was 5.21% for 2001
compared to 5.58% for 2000. The decrease in funding costs resulted from
generally lower interest rates coupled with reductions in higher costing
wholesale funding. Overall, Patriot's net interest margin increased to 2.47% for
2001 compared to 2.24% in 2000.

            Interest on loans was $54,122,000 for 2001 compared to $55,531,000
for 2000. The average balance of loans in 2001 was $653,460,000 with an average
yield of 8.25% compared to an average balance of $666,171,000 with an average
yield of 8.33% in 2000. The decrease in average balance is a result of Patriot
allowing mortgages to run-off, offset by aggressive marketing of commercial
loans and leases. The decrease in average yield is primarily a result of a
decrease in interest rates.

            Interest on Patriot's investment portfolio (investment and
mortgage-backed securities) was $21,220,000 for 2001 compared to $28,190,000 for
2000. The average balance of the investment portfolio was $333,872,000 with an
average yield of 6.73% for 2001 compared to an average balance of $412,712,000
with an average yield of 7.17% for 2000. The decrease in average balance is
primarily due to Patriot allowing the investment portfolio to amortize so that
it can be replaced with generally higher-yielding commercial loans and leases.
The decrease in average yield is related to general decreases in market rates on
adjustable rate securities.

            Interest on total deposits was $27,690,000 for 2001 compared to
$30,714,000 for 2000. The average balance of total deposits was $575,235,000
with an average cost of 4.82% for 2001 compared to an average balance of
596,618,000 with an average cost of 5.15% for 2000. The decrease in average
balance is primarily the result of a decrease in Patriot's jumbo certificate of
deposits, offset by aggressive marketing of money market accounts, transaction
based deposit accounts and other certificates of deposits. The average balance
on jumbo certificates of deposit decreased to $105,530,000 in 2001 compared to
$195,176,000 in 2000. The average balance of retail deposits (total deposits
less jumbo certificate of deposits) was $469,705,000 with an average cost of
4.34% for 2001 compared to an average balance of $401,441,000 with an average
cost of 4.36% for 2000. The increase in average balance on retail deposits is
the result of growth in certificates of deposit and money market accounts. The
overall decrease in the average cost on deposits is primarily the result of a
decrease in interest rates and emphasis placed on lower cost money market and
transaction based deposit accounts.

            Interest on borrowings was $24,519,000 in 2001 compared to
$30,757,000 in 2000. The average balance of borrowings was $421,084,000 with an
average cost of 5.75% for 2001 compared to an average balance of $504,666,000
with an average cost of 6.01% for 2000. The decrease in average balance is
primarily due to borrowings being repaid by proceeds received on investment
sales, run-off of the mortgage loan portfolio and growth in Patriot's retail
deposits, offset by growth in Patriot's commercial loan and lease portfolios.
The decrease in average cost is due to lower interest rates.


                                       14
<PAGE>

            SPREAD ANALYSIS. The following table sets forth Patriot's average
balances and the yields on those balances for the years ended December 31, 2001,
2000 and 1999. The yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities, respectively, for the periods
shown, except where noted otherwise. The yields and costs include fees, which
are considered adjustments to yields.

<TABLE>
<CAPTION>
                                                                FOR THE YEAR ENDED DECEMBER 31,
                                      ---------------------------------------------------------------------------------
                                                       2001                                       2000
                                      -------------------------------------     ---------------------------------------
                                         AVERAGE                     YIELD/        AVERAGE                      YIELD/
                                         BALANCE       INTEREST      RATE          BALANCE        INTEREST       RATE
                                      -------------    ---------    -------     -------------    -----------   --------
                                                                        (IN THOUSANDS)
<S>                                   <C>              <C>          <C>         <C>              <C>              <C>
ASSETS:
     Interest-earning assets:
     Interest-earning deposits.....   $     13,682     $    508       3.71%     $     12,330     $      422       3.42%
     Investment and mortgage-backed
     securities(1) ................        333,872       21,220       6.73           412,712         28,190       7.17
     Loans and leases receivable,
     net(2)........................        653,460       54,122       8.30           666,171         55,531       8.33
                                      -------------    ---------    -------     -------------    -----------   --------
     Net interest-earning
        Assets.....................      1,001,014       75,850       7.71         1,091,213         84,143       7.82
     Non-interest-earning assets...         56,549         ----       ----            62,104           ----       ----
                                      -------------    ---------    -------     -------------    -----------   --------
     Total assets..................   $  1,057,563     $ 75,850       7.30%     $  1,153,317     $   84,143       7.42%
                                      =============    =========    =======     =============    ===========   ========
LIABILITIES AND EQUITY:
     Interest-bearing liabilities:
     Savings deposits..............   $    225,845     $  5,763       2.55%     $    199,543     $    6,016       3.01%
     Certificates of deposit.......        349,390       21,927       6.28           397,075         24,698       6.22
                                      -------------    ---------    -------     -------------    -----------   --------
     Total deposits ...............        575,235       27,690       4.81           596,618         30,714       5.15
     Borrowings(3).................        421,084       24,519       5.82           504,666         30,757       6.01
                                      -------------    ---------    -------     -------------    -----------   --------
     Total interest-bearing
     liabilities...................        996,319       52,209       5.24%        1,101,284         61,471       5.58%
     Non-interest-bearing
     liabilities...................          3,266         ----        ---             1,213           ----       ----
                                      -------------    ---------    -------     -------------    -----------   --------
     Total liabilities.............        999,585       52,209       5.22         1,102,497         61,471       5.58
     Equity........................         57,978         ----       ----            50,820           ----       ----
                                      -------------    ---------    -------     -------------    -----------   --------
     Total liabilities and
     equity........................   $  1,057,563     $ 52,209       4.94%     $  1,153,317     $   61,471       5.34%
                                      =============    =========    =======     =============    ===========   ========

     Net Interest Income...........                    $ 23,641                                  $   22,672
                                                       =========                                 ===========

     Net interest rate
     spread(4).....................                                   2.36%                                       2.08%
                                                                    =======                                    ========
     Net interest margin(5)........                                   2.50                                        2.25
     Ratio of interest-earning
     assets to interest bearing
     liabilities...................         100.47%                                    99.09%

<CAPTION>

                                            FOR THE YEAR ENDED DECEMBER 31,
                                        ---------------------------------------
                                                         1999
                                        ---------------------------------------
                                           AVERAGE                      YIELD/
                                           BALANCE        INTEREST       RATE
                                        -------------    -----------   --------
                                                    (IN THOUSANDS)
<S>                                     <C>              <C>              <C>
ASSETS:
     Interest-earning assets:
     Interest-earning deposits.....     $     12,729     $      298       2.34%
     Investment and mortgage-backed
     securities(1) ................          457,093         29,656       6.78
     Loans and leases receivable,
     net(2)........................          571,966         45,590       7.97
                                        -------------    -----------   --------
     Net interest-earning
        Assets.....................        1,041,788     $   75,544       7.35
     Non-interest-earning assets...           55,753           ----       ----
                                        -------------    -----------   --------
     Total assets..................     $  1,097,541     $   75,544       7.00%
                                        =============    ===========   ========
LIABILITIES AND EQUITY:
     Interest-bearing liabilities:
     Savings deposits..............     $    179,774     $   4,767        2.65%
     Certificates of deposit.......          289,040        15,798        5.47
                                        -------------    ----------    --------
     Total deposits ...............          468,814        20,565        4.38
     Borrowings(3).................          568,922        30,945        5.43
                                        -------------    ----------    --------
     Total interest-bearing
     liabilities...................        1,037,736        51,510        4.96%
     Non-interest-bearing
     liabilities...................            4,847          ----        ----
                                        -------------    ----------    --------
     Total liabilities.............        1,042,583        51,510        4.94
     Equity........................           54,958          ----        ----
                                        -------------    ----------    --------
     Total liabilities and
     equity........................     $  1,097,541     $  51,510        4.69%
                                        =============    ==========    ========

     Net Interest Income...........                      $  24,034
                                                         =========

     Net interest rate
     spread(4).....................                                       2.31%
                                                                       ========
     Net interest margin(5)........                                       2.44
     Ratio of interest-earning
     assets to interest bearing
     liabilities...................           100.39%
</TABLE>

----------

(1)     Includes securities available for sale and held to maturity and
        unamortized discounts and premiums. The yield is presented on tax
        equivalent basis for tax beneficial investments. The amount of tax
        beneficial interest associated with securities for 2001, 2000, and 1999
        was $1,250,000, $1,401,000 and $1,335,000, respectively.

(2)     Amount is net of deferred loan and lease fees, loans in process,
        discounts and premiums, and allowance for loan and lease losses and
        includes loans held for sale and non-performing loans and leases for
        which the accrual of interest has been discontinued. The yield is
        presented on a tax equivalent basis for tax beneficial loans. The amount
        of tax beneficial interest associated with loans and leases for 2001 was
        $115,000. The was not any tax beneficial interest associated with loans
        and leases in previous years.

(3)     Includes short-term, long-term and trust preferred borrowings.

(4)     Net interest rate spread represents the difference between the average
        yield on total assets and the average cost of total liabilities and
        equity.

(5)     Net interest margin represents the tax-equivalent net interest income
        divided by average interest-earning assets. The impact of the
        tax-equivalent calculation increased the net interest margin by .14% in
        2001, .13% in 2000 and .12% in 1999 due to tax equivalent calculations.


                                       15
<PAGE>

            RATE/VOLUME ANALYSIS. The following table presents the extent to
which net interest income changed due to changes in interest rates and changes
in the volume of interest-earning assets and interest-bearing liabilities during
the periods indicated. Information is provided in each category with respect to
changes attributable to changes in rate (changes in rate multiplied by prior
volume), and the net change. The changes attributable to the combined impact of
volume and rate have been allocated proportionally to the changes due to volume
and the changes due to rate.


<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31, 2001                 YEAR ENDED DECEMBER 31, 2000
                                                     COMPARED TO YEAR ENDED                       COMPARED TO YEAR ENDED
                                                        DECEMBER 31 2000                            DECEMBER 31, 1999
                                                      INCREASE (DECREASE)                           INCREASE(DECREASE)
                                                             DUE TO                                       DUE TO

                                                 VOLUME        RATE        NET               VOLUME          RATE          NET
                                                 ------        ----        ---               ------          ----          ---
                                                                              (IN THOUSANDS)
<S>                                               <C>        <C>         <C>                 <C>            <C>          <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits                       $     46     $    40    $     86              $     (9)    $     133    $     124
Investment and mortgage-backed securities         (5,653)     (1,317)     (6,970)               (3,160)        1,694       (1,466)
Loans receivable                                  (1,058)       (351)     (1,409)                7,802         2,139        9,941
                                               -----------   ---------  ----------         ------------   -----------   ----------

Total interest-earning assets                     (6,665)     (1,628)     (8,293)                4,633         3,966        8,599
                                               -----------   ---------  ----------         ------------   -----------   ----------

INTEREST-BEARING LIABILITIES:
Deposits                                          (1,100)     (1,924)     (3,024)                7,115         3,029       10,144
Borrowings                                        (5,024)     (1,214)     (6,238)               (3,429)        3,246         (183)
                                               -----------   ---------  ----------         ------------   -----------   ----------

Total interest-bearing liabilities                (6,124)     (3,138)     (9,262)                3,686         6,275        9,961
                                               -----------   ---------  ----------         ------------   -----------   ----------

Net change in net interest income               $   (541)    $ 1,510    $    969              $    947     $  (2,309)   $  (1,362)
                                               ===========   =========  ==========         ============   ===========   ==========
</TABLE>


                                       16
<PAGE>

            PROVISION FOR CREDIT LOSSES. The provision for credit losses was
$2,000,000 for 2001 compared to $1,125,000 for 2000. See "Credit Quality" for a
detailed discussion of Patriot's asset quality and reserving methodology.

The following table sets forth the activity in the allowance for credit losses
for the years indicated:

<TABLE>
<CAPTION>
                                                           AT OR FOR THE YEAR ENDED DECEMBER 31,

                                                2001         2000         1999         1998         1997
                                                ----         ----         ----         ----         ----
<S>                                           <C>          <C>          <C>          <C>          <C>
Allowance, beginning of year                  $  5,839     $  6,082     $  4,087     $  2,512     $  1,830
Charge-offs:
      Commercial loans                             640          675          443          253           --
      Commercial leases                            798          436          130           --           --
      Residential loans                             79          102          249          114           17
      Home equity and consumer loans               355          268          243          145          259
                                              --------     --------     --------     --------     --------

                 Total charge-offs               1,872        1,481        1,065          512          276
                                              --------     --------     --------     --------     --------

Recoveries:
      Commercial loans                              39           16           27           --           31
      Commercial leases                            134           82           39           --           --
      Residential loans                             29           --           --           --            2
      Home equity and consumer loans                30           15           38            9           10
                                              --------     --------     --------     --------     --------

                 Total recoveries                  232          113          104            9           43
                                              --------     --------     --------     --------     --------

Net charge-offs                                  1,640        1,368          961          503          233
Acquired allowance                                  --           --        1,756          878           --
Provision charged to operations                  2,000        1,125        1,200        1,200          915
                                              --------     --------     --------     --------     --------

Allowance, end of year                        $  6,199     $  5,839     $  6,082     $  4,087     $  2,512
                                              ========     ========     ========     ========     ========


Net charge-offs to average loans and leases        .25%         .21%         .17%         .11%         .07%
Allowance for credit losses as a
      percentage of year-end total loans           .95%         .88%         .96%         .79%         .59%

</TABLE>

            NON-INTEREST INCOME. Total non-interest income was $7,892,000 for
2001 compared to $7,124,000 for 2000. The increase was primarily due to an
increased emphasis on recurring non-interest income including loan and deposit
fees offset by a decrease in ATM fees which was primarily the result of
discontinuing the operations of several ATM machines at the end of 2000.

            NON-INTEREST EXPENSE. Total non-interest expense was $20,768,000 for
2001 compared to $26,844,000 for 2000. Non-interest expense in 2000 included
$785,000 related to the resignation of Patriot's former President and Chief
Executive Officer, a one time restructuring charge of $1,453,000 and
non-recurring expenses of $ 986,000 related to the restructuring of Patriot's
mortgage company and call center. The decrease in non-interest expense was
primarily due to Patriot's restructuring of its mortgage banking operations
overhead structure from a fixed to variable cost model. Patriot's efficiency
ratio was 66.51% in 2001 compared to 73.70% in 2000, exclusive of the
non-recurring charges in 2000.

            INCOME TAX PROVISION. The income tax provision was $2,462,000
compared to $(182,000) for 2000. The effective tax rate for 2001 was 28.09%
compared to (9.96)% for 2000. In 2000, the (9.96)% effective tax rate was the
result of the tax impact of the non-recurring costs. Excluding the non-recurring
costs in 2000, Patriot's effective tax rate was 22.03%. The increase in the
effective tax rate is primarily due to income provided by certain tax
preferential securities comprising a smaller percentage of taxable income in
2001.


                                       17
<PAGE>

                               FINANCIAL CONDITION

            LOAN PORTFOLIO. Patriot's primary loan products are commercial loans
and leases, home equity loans on existing owner-occupied residential real
estate, and fixed-rate and adjustable-rate mortgage loans. Patriot also offers
residential construction loans and other consumer loans.

            COMMERCIAL LENDING. Patriot originates commercial loans with an
emphasis on small businesses, professionals and entrepreneurs within Patriot's
local markets. Most of Patriot's commercial loan relationships have exposure of
$500,000 or less. Commercial loans are generally secured by real estate and
personal guarantees.

            COMMERCIAL LEASING. Patriot's subsidiary, Patriot Commercial Leasing
Company (PCLC), is a small-ticket commercial leasing company. PCLC originates
leases to businesses predominantly located on the East Coast. Transaction sizes
generally range from $5,000 to $500,000 with the average transaction being less
than $50,000. PCLC is owned 100% by Patriot Bank. PCLC's leases are considered
financing leases for accounting purposes.

            CONSUMER LENDING. Patriot offers variable rate (based upon prime
rate) home equity lines of credit and fixed-rate home equity loans, which are
generally secured by single-family, owner-occupied residential properties.
Patriot also offers a variety of other consumer loans, which primarily consist
of installment loans secured by automobiles, credit cards, unsecured lines of
credit and other loans secured by deposit accounts.

            MORTGAGE LENDING. Patriot offers both fixed-rate and adjustable-rate
mortgage loans secured by one- to four-family residences, primarily
owner-occupied, located in Patriot's primary market area. Patriot generally
underwrites its first mortgage loans in accordance with underwriting standards
set by the Federal Home Loan Mortgage Corp. (FHLMC) and the Federal National
Mortgage Association (FNMA). Patriot also originates residential construction
loans. Substantially all of the residential mortgage loans originated by Patriot
are sold into the secondary markets; therefore, Patriot's mortgage loan
portfolio consists mainly of seasoned mortgage loans originated prior to 2000.

            At December 31, 2001, Patriot's total loan portfolio was
$649,139,000 compared to a total loan portfolio of $656,479,000 at December 31,
2000. The decrease in the loan portfolio is primarily the result of Patriot
allowing mortgages to runoff, offset by an emphasis placed on increasing
commercial lending and leasing relationships.


                                       18

<PAGE>
The following table sets forth the composition of Patriot's loan portfolio in
dollar amounts and in percentages of the respective portfolios at the dates
indicated:


<TABLE>
<CAPTION>
                                                                       AT DECEMBER 31,
                                 ------------------------------------------------------------------------------------
                                             2001                         2000                          1999
                                 ---------------------------- ------------------------------ ------------------------
                                                   PERCENT                        PERCENT                     PERCENT
                                     AMOUNT       OF TOTAL        AMOUNT         OF TOTAL       AMOUNT       OF TOTAL
                                  --------------------------- ---------------------------    ------------------------
                                                                    (IN THOUSANDS)
<S>                               <C>           <C>           <C>             <C>          <C>             <C>
Commercial Portfolio:
     Commercial loans               $  283,848     43.79%      $ 252,837          38.47%    $  189,189        30.02%
     Commercial leases                  77,838     12.01          67,094          10.21         57,808         9.17

Consumer Portfolio:
     Home equity                        66,834     10.31          64,733           9.85         69,785        11.07
     Other consumer loans                8,614      1.33           8,553           1.30          9,081         1.44

Mortgage Portfolio:
     Residential mortgages             206,467     31.85         253,213          38.53        293,852        46.64
     Construction                        4,605       .71          10,779           1.64         10,481         1.66
                                    ----------    ------       ---------         ------     ----------       ------
Total loans and leases, gross          648,206    100.00%        657,209         100.00%       630,196       100.00%
     Deferred loan costs (fees) (1)        933                      (730)                       (2,136)
     Allowance for credit losses       (6,199)                    (5,839)                       (6,082)
                                    ----------                 ---------                    ----------

Total loans and leases, net         $  642,940                 $ 650,640                    $  621,978
                                    ==========                 =========                    ==========
</TABLE>





<TABLE>
<CAPTION>
                                                          AT DECEMBER 31,
                                      ------------------------------------------------------
                                               1998                          1997
                                      -----------------------         ----------------------
                                                     PERCENT                         PERCENT
                                         AMOUNT     OF TOTAL          AMOUNT        OF TOTAL
                                      -----------------------         ----------------------
                                                          (IN THOUSANDS)
<S>                                  <C>           <C>            <C>            <C>
Commercial Portfolio:
     Commercial loans                 $  92,367       18.06%       $  46,166          10.87%
     Commercial leases                   44,301        8.66              334           0.08

Consumer Portfolio:
     Home equity                         64,807       12.67           75,439          17.77
     Other consumer loans                 4,336        0.85            3,909           0.92

Mortgage Portfolio:
     Residential mortgages              300,232       58.73          294,716          69.41
     Construction                         5,267        1.03            4,039           0.95
                                     ----------      ------        ---------         ------

Total loans and leases, gross           511,310      100.00%         424,603         100.00%
     Deferred loan fees (1)              (2,230)                      (2,394)
     Allowance for credit losses         (4,087)                      (2,512)
                                     ----------                    ---------

Total loans and leases, net           $ 504,993                    $ 419,697
                                     ==========                    =========

</TABLE>

(1)   Patriot's focus is on growing its commercial loan, lease and consumer
      portfolios while allowing mortgage loans to run-off.  There tends to be
      more deferred costs associated with originating commercial loans and
      leases as compared to originating mortgage loans, which have more
      deferred fees. As a result, Patriot's position transitioned from
      $(730,000) in net deferred fees in 2000 to $933,000 in net deferred
      costs in 2001.

                                       19
<PAGE>



LOAN MATURITY. The following table sets forth the maturity schedule for
Patriot's loan portfolio (excluding residential mortgages and consumer loans):

<TABLE>
<CAPTION>
                                                                      AMOUNTS AT DECEMBER 31, 2001, MATURING
                                                           ------------------------------------------------------------
                                                                              AFTER ONE
                                                              IN ONE            YEAR
                                                              YEAR OR         THROUGH       AFTER FIVE
                                                               LESS          FIVE YEARS        YEARS           TOTAL
                                                           --------------   -------------   ------------    ------------
                                                                                  (IN THOUSANDS)
<S>                                                        <C>              <C>             <C>            <C>
Loan Maturity Schedule:
Commercial loans...................................         $   62,108       $  180,907      $  22,056      $  265,071
Commercial construction loans......................             13,689            4,390            698          18,777
Commercial leases..................................             27,985           49,523            330          77,838
Residential construction loans.....................              4,605               --             --           4,605
                                                            -----------      -----------     ----------     -----------
        Total......................................         $  108,387       $  234,820      $  23,084      $  366,291
                                                            ===========      ===========     ==========     ===========


Fixed rates........................................         $   63,232       $  224,942      $  21,520      $  309,694
Adjustable rates...................................             45,155            9,878          1,564          56,597
                                                            -----------      -----------     ----------     -----------
        Total......................................         $  108,387       $  234,820      $  23,084      $  366,291
                                                            ===========      ===========     ==========     ===========
</TABLE>



         CREDIT QUALITY. Patriot's Asset Review and Credit Administration
Committee establishes acceptable credit risks to be undertaken, the policies and
procedures to be used to control credit risk and the corrective actions to be
taken when credit challenges are encountered. This committee also reviews credit
quality on a monthly basis, classifies assets in accordance with applicable
management guidelines and regulations and makes recommendations to Patriot's
Board of Directors with regard to placing assets on non-accrual status,
charge-offs and write-downs and the appropriate level of credit reserves.

         Patriot accrues interest on all loans until management determines that
the collection of interest is doubtful. In no event does Patriot continue
accruing interest on loans contractually past due 90 days or more. Upon
discontinuance of interest accrual, all unpaid accrued interest is reversed.
Patriot generally requires appraisals on an annual basis on foreclosed
properties. Patriot generally conducts inspections on foreclosed properties on
at least a quarterly basis.

         At December 31, 2001, non-performing assets ("NPAs") were $5,335,000 or
0.53% of total assets compared to $3,950,000 or .35% of total assets at December
31, 2000. Although the ratio of non-performing assets to total assets has grown
during the past year, Patriot's ratio of NPAs to total assets is generally
better than the average of all banks in the Mid-Atlantic region and better than
the average for all U.S. banks between $1-$5 billion. Patriot controls its level
of non-performing assets by quickly identifying problem assets and resolving
them in an expedient manner. At December 31, 2001, Patriot had no restructured
loans within the meaning of SFAS No. 15 and no potential problem loans within
the meaning of the Securities and Exchange Commission Guide 3.




                                       20
<PAGE>




The following table sets forth information regarding non-performing assets:

<TABLE>
<CAPTION>
                                                                            AT DECEMBER 31,
                                                                            ---------------

                                                          2001      2000         1999         1998        1997
                                                          ----      ----         ----         ----        ----
                                                                             (IN THOUSANDS)
<S>                                                   <C>       <C>          <C>          <C>          <C>
Non-accrual loans and leases greater than 90 days:
     Residential mortgages                             $ 1,636   $ 1,142      $   591      $   494     $   524
     Commercial loans                                    2,047     1,593          189          159         128
     Commercial leases                                     686       502           56           75          --
     Home equity and consumer                              184       255          373          212         125
                                                       -------   -------      -------      -------     -------
Total non-accrual loans and leases greater than 90
days                                                     4,553     3,492        1,209          940         777
                                                       -------   -------      -------      -------     -------

      Commercial loans                                      30       208           --           --          --
      Commercial leases                                    116        --           --           --          --
      Residential mortgages                                154       166          242           98         328
      Home equity and consumer                             133        22           74           31           7
                                                       -------   -------      -------      -------     -------

Total non-accrual loans and leases less than 90
days                                                       433       396          316          129         335
                                                       -------   -------      -------      -------     -------

Total non-performing loans                               4,986     3,888        1,525        1,069       1,112

REO                                                        349        62          193           58         162
                                                       -------   -------      -------      -------     -------

Total non-performing assets                            $ 5,335   $ 3,950      $ 1,718      $ 1,127     $ 1,274
                                                       =======   =======      =======      =======     =======

Allowance for credit losses as a percent
of loans receivable                                        .95%      .88%         .96%         .79%        .59%
Allowance for credit losses as a percent
of total non-performing assets                          116.20    147.82       354.02       362.63      225.90
Non-performing loans as a percent of total
Loans receivable                                           .76       .59          .24          .21         .26
Non-performing assets as a percent of total assets         .53       .35          .15          .11         .15
</TABLE>

         ALLOWANCE FOR CREDIT LOSSES. An allowance for credit losses is
maintained at a level that management considers adequate to provide for losses
based upon an evaluation of known and inherent risks in the loan and lease
portfolio. Management's periodic evaluation of the adequacy of the allowance for
credit losses is based upon evaluation of individual loans and leases, the
overall risk characteristics of the various portfolio segments, regression
analysises using past loss experience, current and projected financial status
and creditworthiness of its borrowers, the adequacy of collateral, the level and
nature of non-performing loans, current economic conditions, the results of the
most recent regulatory examination and other relevant factors. This evaluation
is inherently subjective. While management uses the best information available
to make such evaluations, future adjustments to the allowance may be necessary
if conditions differ substantially from the assumptions used in making the
evaluations. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for credit losses.
Such agencies may require Patriot to recognize additions to the allowance for
credit losses based on their judgments of information which is available to them
at the time of their examinations.

         Patriot's total loans consist of four distinct portfolios. Each of
which is monitored and analyzed seperately.

         Mortgage loans comprise 32.56% of total loans. The mortgage loan
portfolio is seasoned as Patriot has been in the mortgage lending business for
many years and has sold substantially all new mortgage originations in the past
two years. The level of non-performing assets in the mortgage portfolio has
increased during the past two years. Management believes this increase can be
attributed to the current recessionary phase of the credit cycle and a
relatively low reference point in previous years balances. Patriot's mortgage
loans are generally well collateralized


                                       21
<PAGE>


and historically Patriot has experienced minimal losses on these loans. Because
of Patriot's consistent history in mortgage lending and the long-term nature of
this portfolio, Patriot predominately relies upon an internal regression
analysis which uses historical data to estimate losses that are inherent in the
portfolio.

         Consumer loans comprise 11.64% of total loans and consist mostly of
home equity loans and home equity lines of credit. The consumer loan portfolio
is also mature as Patriot has been in consumer lending business for many years.
As with mortgage lending Patriot predominantly uses an internal regression
analysis which uses historical data to estimate losses that are inherent in the
portfolio.

         Commercial loans comprise 43.79% of total loans. Patriot entered the
commercial lending business in 1996 and has grown the portfolio into a
substantial portion of total loans. Patriot now has adequate historical data to
prepare regression models to monitor trends of charge-offs and recoveries and
establish appropriate allowance levels. Patriot also closely monitors local
economic and business trends relative to its commercial lending portfolio to
estimate the effect those trends may have on potential losses. Patriot's
commercial loan portfolio contains some loans that are substantially larger than
the loans within other portfolios. The potential loss associated with an
individual loan could have a significant impact on the allowance and charge-off
levels at Patriot. Therefore Patriot closely monitors these loans and will
specifically reserve for individual loans which exhibit weakness.

         Commercial leases comprise 12.01% of total loans. Patriot entered the
commercial leasing business in 1998 principally through the acquisition of
Keystone Leasing. Patriot's leasing portfolio has a short, approximately 3-year
life. Patriot performs an internal regression analysis on this portfolio using
historical data (including Keystone Leasing data). Patriot also closely monitors
regional and national economic business trends relative to its commercial
leasing portfolio to estimate the effects those trend may have on potential
losses.

         Patriot's percentage of loan loss reserves to total loans increased
from .88% in 2000 to .95% in 2001, which correlates to Patriot's growth in its
higher risk commercial loan and lease portfolios. During 2001 Patriot's loan and
lease portfolios decreased from $656,479,000 at December 31, 2000, to
$649,139,000. In 2001, Patriot implemented a strategy that focused on reducing
the mortgage loan portfolio, which resulted in a decrease of approximately $53
million. This decrease was partially offset by a growth in Patriot's commercial
loan and lease portfolios. Based on the growth in the commercial loan and lease
portfolios, management determined a provision of $2,000,000 was necessary to
adequately address the risk inherent in Patriot's loan and lease portfolios.
Patriot believes that the allowance provided adequate coverage of potential
credit losses at December 31, 2001.




                                       22
<PAGE>



The following table sets forth management's allocation of the allowance for
credit losses at the dates indicated:

<TABLE>
<CAPTION>
                                                                 At December 31
                                                                 --------------
                                  2001                                2000                                    1999
                                  ----                                ----                                    ----

                                           Percent of                            Percent of                           Percent of
                               Percent of   Loans in                Percent of    Loans in              Percent of     Loans in
                               Allowance      Each                  Allowance       Each                Allowance        Each
                                  to        Category                   to         Category                to           Category
                                 Total      to Total                  Total       to Total               Total         to Total
                      Amount   Allowance     Loans       Amount     Allowance      Loans      Amount    Allowance        Loans
                      ------   ---------     -----       ------     ---------      -----      ------    ---------        -----
                                                     (dollars in thousands)
<S>                  <C>         <C>        <C>       <C>           <C>         <C>        <C>           <C>         <C>
Commercial
  loans and leases   $ 4,767      76.90%     55.80%    $  4,312        73.84%      48.46%   $  3,605       59.27%       39.02%
Home equity
  and consumer           654      10.55      11.64          624        10.69       11.15         968       15.92        12.46
Residential
  Mortgages              778      12.55      32.56          903        15.47       40.39       1,509       24.81        48.52
                     -------     ------     ------     --------      -------      ------    --------      ------       ------
Total  valuation
Allowances           $ 6,199     100.00%    100.00%    $  5,839       100.00%     100.00%   $  6,082      100.00%      100.00%
                     =======     ======     ======     ========      =======      ======    ========      ======       ======
</TABLE>


<TABLE>
<CAPTION>
                                                          At December 31,
                                                          ---------------
                                     1998                                     1997
                                     ----                                     ----

                                                Percent of                              Percent of
                                   Percent of   Loans in                   Percent of   Loans in
                                   Allowance      Each                     Allowance      Each
                                      to        Category                      to        Category
                                     Total      to Total                     Total      to Total
                           Amount  Allowance      Loans       Amount       Allowance      Loans
                           ------  ---------      -----       ------       ---------      -----
                                                   (dollars in thousands)
<S>                     <C>          <C>         <C>        <C>             <C>         <C>
Commercial
  Loans and leases       $  2,131     52.13%      26.72%    $   629          25.04%        8.70%
Home equity
  and consumer                683     16.72       13.52         630          25.08        19.06
Residential
  Mortgages                 1,273     31.15       59.76       1,253          49.88        72.24
                         --------    ------      ------     -------         ------       ------
Total valuation
Allowances               $  4,087    100.00%     100.00%    $ 2,512         100.00%      100.00%
                         ========    ======      ======     =======         ======       ======
</TABLE>

         CASH AND CASH EQUIVALENTS. Cash and cash equivalents at December 31,
2001, were $21,466,000 compared to $27,076,000 at December 31, 2000. The
decrease in cash and cash equivalents was temporary and primarily due to timing
differences related to the repayment of borrowed funds.

         SECURITIES. Investment securities consist of US Treasury and government
agency securities, corporate debt and equity securities. Mortgage-backed
securities consist of securities generally issued by either the Federal Home
Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA)
or the Government National Mortgage Association (GNMA). Collateralized Mortgage
Obligations (CMOs) consist of securities issued by the FHLMC, FNMA or private
issuers.

         Total investment and mortgage-backed securities at December 31, 2001,
were $291,249,000 compared to $387,378,000 at December 31, 2000. The decrease in
investment and mortgage-backed securities is primarily due to the sale of
$50,920,000 of investments during 2001 along with higher investment amortization
and prepayments. Patriot adopted SFAS 133 on January 1, 2001. At the time of
adoption, Patriot reclassified approximately $220,471,000 of fixed rate mortgage
backed securities, CMOs and agency securities from held to maturity to available
for sale and equity resulting in a net of tax increase of approximately
$3,000,000 in accumulated other comprehensive income. During the first quarter
of 2001, Patriot sold $30,333,000 of the securities reclassified resulting in a
cumulative change in accounting principle with a net after tax impact of a
$204,000 loss. Patriot typically has not used derivative instruments and
currently holds no positions that had further impact on earnings, financial
condition or equity.


                                       23
<PAGE>

The following table sets forth certain information regarding the amortized cost
and market value of investment and mortgage-backed securities at the dates
indicated:

<TABLE>
<CAPTION>
                                                                                 AT DECEMBER 31,
                                                                                 ---------------
                                                            2001                      2000                   1999
                                                            ----                      ----                   ----
                                                   AMORTIZED         FAIR    AMORTIZED        FAIR   AMORTIZED       FAIR
                                                     COST            VALUE     COST           VALUE    COST          VALUE
                                                     ----            -----     ----           -----    ----          -----
                                                                                  (IN THOUSANDS)
<S>                                               <C>           <C>         <C>          <C>        <C>          <C>
AVAILABLE FOR SALE:
       Investment securities:
          US Treasury and government
          agency securities                         $ 31,475     $   29,837   $    --      $     --   $     --     $     --
          Corporate securities                        16,582         14,953    17,084        15,107     17,361       16,663
          Equity securities                           67,966         69,695    67,877        69,162     72,106       70,671
       Mortgage-backed securities:
          FHLMC                                        5,194          5,197       613           620         --           --
          FNMA                                        45,466         45,446        --            --         --           --
          GNMA                                           120            132        --            --         --           --
       Collateralized mortgage obligations:
          FHLMC                                       44,879         45,252        --            --         --           --
          FNMA                                        33,632         34,144        --            --         --           --
          Other                                        2,938          2,956        --            --         --           --
                                                    --------     ----------  --------      --------   --------     --------
          Total investment and mortgage-backed
           securities available for sale            $248,252     $  247,612  $ 85,574      $ 84,889  $  89,467     $ 87,334
                                                    ========     ==========  ========      ========   ========     ========

HELD TO MATURITY:
       Investment securities:
          US Treasury and government
          agency securities                         $ 14,388     $   14,504  $ 76,545     $  73,558  $  74,246    $  66,791
          Corporate securities                         1,000          1,001     1,001         1,000      1,501        1,500
       Mortgage-backed securities:
          FHLMC                                        1,662          1,652     3,446         3,426      4,272        4,292
          FNMA                                         1,680          1,709    48,462        49,884     54,809       51,673
          GNMA                                         2,245          2,237     3,573         3,528      4,528        4,569
       Collateralized mortgage obligations:
          FHLMC                                       16,186         15,617    90,920        89,922    114,178      110,809
          FNMA                                         6,476          6,358    70,043        69,767     82,489       79,215
          Other                                           --             --     6,196         6,175      9,732        9,700
          CMBS                                            --             --     2,303         2,425      2,292        2,205
                                                    --------     ----------  --------      --------   --------     --------
       Total investment and mortgage-backed
        securities held to maturity                 $ 43,637     $   43,078  $302,489      $299,685   $348,047     $330,754
                                                    ========     ==========  ========      ========   ========     ========
</TABLE>



                                       24
<PAGE>



The following table sets forth certain information regarding the carrying value,
weighted average yield and contractual maturities of Patriot's investment and
mortgage-backed securities as of December 31, 2001.

<TABLE>
<CAPTION>
                                                                  MORE THAN ONE YEAR       MORE THAN FIVE YEARS
                                           ONE YEAR OR LESS         TO FIVE YEARS              TO TEN YEARS
                                          -------------------     -------------------      -----------------------
                                                     WEIGHTED                 WEIGHTED                  WEIGHTED
                                          CARRYING   AVERAGE      CARRYING    AVERAGE      CARRYING     AVERAGE
                                           VALUE      YIELD        VALUE      YIELD          VALUE       YIELD
                                          ------------------------------------------------------------------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                     <C>         <C>       <C>             <C>       <C>             <C>
AVAILABLE FOR SALE:
Investment securities:
     U.S. Treasury and government
       securities                        $     --              $      --%        --%     $      --           --%
    Corporate securities                       25    3.50             --         --             --           --
     State and municipal securities            --      --             --         --             --           --
     Equity securities                         --      --             --         --             --           --
Mortgage-backed securities:
     FHLMC                                    230    6.02          1,077       6.09          1,770         6.09
     FNMA                                   1,981    6.21          7,114       6.18          9,782         6.15
     GNMA                                     104    8.91             28       8.65             --           --
Collateralized Mortgage Obligations:
     FHLMC                                  1,709    6.47          7,008       6.43         11,323         6.44
     FNMA                                   1,200    5.93          4,483       6.13          7,345         6.16
     Other                                    501    7.77            491       7.84            225         6.65
                                         --------  ------      ---------     ------      ---------      -------
Total available for sale                 $  5,750    6.39%     $  20,201       6.30%     $  30,445         6.05%
                                         ========  ======      =========     ======      =========      =======

HELD TO MATURITY:
Investment securities:
      U.S. Treasury and government
        securities                       $     --      --%     $   2,498       5.58%     $      --           --%
      Corporate securities                  1,000    7.06             --         --             --           --
      State and municipal securities           --      --             --         --            201         4.39
Mortgage-backed securities:
     FHLMC                                    621    6.77          1,007       6.64             34         5.81
     FNMA                                     662    5.29            916       5.71            100          757
     GNMA                                     327    6.15          1,392       6.19            526         6.16
Collateralized mortgage obligations:
     FHLMC                                    611    2.96          2,705       2.96          3,885         2.96
     FNMA                                     406    2.76          1,792       2.76          2,085         2.77
     Other                                     --      --             --         --             --           --
                                         --------  ------      ---------     ------      ---------      -------
Total held to maturity:                  $  3,627    5.43%     $  10,310       4.60%     $   6,831         3.27%
                                         ========  ======      =========     ======      =========      =======
</TABLE>



<TABLE>
<CAPTION>

                                          MORE THAN TEN YEARS     NO STATED MATURITY               TOTAL
                                          -------------------     -------------------      ----------------------
                                                     WEIGHTED                  WEIGHTED                    WEIGHTED
                                          CARRYING   AVERAGE      CARRYING     AVERAGE        CARRYING     AVERAGE
                                           VALUE      YIELD        VALUE        YIELD          VALUE        YIELD
                                          -------------------------------------------------------------------------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                       <C>          <C>      <C>           <C>         <C>            <C>
AVAILABLE FOR SALE:
Investment securities:
     U.S. Treasury and government
       securities                         $   27,958     7.38%    $       --        --%     $   27,958       7.38%
     Corporate securities                     14,928     8.75             --        --          14,953       8.74
     State and municipal securities            1,879     5.28             --        --           1,879       5.28
     Equity securities                            --       --         69,695      5.82          69,695       5.82
Mortgage-backed securities:
     FHLMC                                     2,120     6.28             --        --           5,197       6.16
     FNMA                                     26,569     6.40             --        --          45,446       6.30
     GNMA                                         --       --             --        --             132       8.86
Collateralized Mortgage Obligations:
     FHLMC                                    25,212     6.45             --        --          45,252       6.44
     FNMA                                     21,116     6.13             --        --          34,144       6.13
     Other                                     1,739     6.65             --        --           2,956       7.04
                                          ----------   ------     ----------    ------      ----------     ------
Total available for sale                  $  121,521     6.66%    $   69,695      5.82%     $  247,612       6.44%
                                          ==========   ======     ==========    ======      ==========     ======
</TABLE>



                                       25
<PAGE>




<TABLE>
<CAPTION>

                                          MORE THAN TEN YEARS      NO STATED MATURITY               TOTAL
                                          -------------------     -------------------      ----------------------
                                                     WEIGHTED                 WEIGHTED                  WEIGHTED
                                          CARRYING   AVERAGE      CARRYING    AVERAGE      CARRYING     AVERAGE
                                           VALUE      YIELD        VALUE      YIELD          VALUE       YIELD
                                          -----------------------------------------------------------------------
                                                                  (DOLLARS IN THOUSANDS)
<S>                                   <C>            <C>        <C>         <C>         <C>            <C>
HELD TO MATURITY:
Investment securities:
      U.S. Treasury and government
        securities                     $      --          --%    $    --         --%     $    2,498       5.58%
      Corporate securities                    --          --          --         --           1,000       7.06
      State and municipal securities      11,689        5.09          --         --          11,890       5.08
Mortgage-backed securities:
     FHLMC                                    --          --          --         --           1,662       6.67
     FNMA                                      2        7.76          --         --           1,680       5.66
     GNMA                                     --          --          --         --           2,245       6.17
Collateralized mortgage obligations:
     FHLMC                                 8,985        3.01          --         --          16,186       2.99
     FNMA                                  2,193        2.83          --         --           6,476       2.79
     Other                                    --          --          --         --              --         --
                                       ---------     -------     -------     ------      ----------    -------
Total held to maturity:                $  22,869        4.06%    $    --         --%     $   43,637       4.18%
                                       =========     =======     =======     ======      ==========    =======
</TABLE>


         The following table represents the securities of single issuers (other
than obligations of the United States and its political subdivisions, agencies
and corporations) having an aggregate book value in excess of 10% of Patriot's
stockholder's equity which were held at December,31 2001:

<TABLE>
<CAPTION>
                                                             AT DECEMBER 31, 2001
ISSUER                                              CARRYING VALUE             FAIR VALUE
------                                              --------------             ----------
<S>                                                     <C>                       <C>
FHLMC                                                   $42,762                   $44,893
FHLB                                                    $19,359                   $19,359
</TABLE>


         OTHER ASSETS. Other Assets at December 31, 2001 were $7,313,000
compared to $8,618,000 at December 31, 2000. The decrease in other assets was
primarily attributable to adjustments to Patriot's deferred tax position related
to unrealized gains on investments, tax reserves on investments and mortgage
backed securities available for sale.

         DEPOSITS. Deposits are generally attracted from within Patriot's
primary market area through the offering of various deposit instruments,
including checking accounts, money market accounts, savings accounts,
certificates of deposit and retirement savings plans. Patriot also solicits
brokered deposits from various sources.

         Total deposits at December 31, 2001 were $533,863,000 compared to
$649,958,000 at December 31, 2000. Of that decrease, $158,178,000 was related to
wholesale deposits and $6,236,000 was related to retail certificates of
deposits, offset by a $48,319,000 increase of core deposits. The reduction in
wholesale deposits was part of Patriot's strategy to deleverage the balance
sheet and reduce the dependence on wholesale funding.



                                       26
<PAGE>



         The following table sets forth the distribution of average deposit
accounts for the periods indicated and the weighted average yield on each
category of deposit presented:

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31,
                             ----------------------------------------------------------------------------------------------------
                                           2001                              2000                             1999
                             --------------------------------     -----------------------------    ------------------------------
                                           PERCENT                           PERCENT                           PERCENT
                                             OF                                OF                                OF
                                            TOTAL    WEIGHTED                 TOTAL    WEIGHTED                 TOTAL    WEIGHTED
                               AVERAGE     AVERAGE   AVERAGE      AVERAGE    AVERAGE   AVERAGE      AVERAGE    AVERAGE   AVERAGE
                               BALANCE     DEPOSITS   YIELD       BALANCE    DEPOSITS   YIELD       BALANCE    DEPOSITS   YIELD
                             ------------  --------  --------     --------   --------  --------    ---------   -------- ---------
                                                                     (DOLLARS IN THOUSANDS)
<S>                         <C>            <C>        <C>     <C>             <C>        <C>     <C>           <C>        <C>
Money market deposits......  $   130,667    22.72 %    3.80 %  $  103,493      17.35 %    4.84 %  $   86,152    18.37 %    4.07 %
Savings deposits...........       32,351     5.62      1.92        32,907       5.52      2.45        39,654     8.46      2.47
NOW deposits...............       40,151     6.98      0.44        42,116       7.06      0.43        34,294     7.31      0.76
Demand deposits............       22,676     3.94      0.00        21,027       3.52      0.00        19,675     4.20      0.00
Retail certificates of
  deposit..................      243,860    42.39      5.99       201,899      33.84      5.71       179,542    38.30      5.27
                             -----------  -------    ------    ----------   --------   -------    ----------   ------   -------
Total retail deposits......      469,705    81.65      4.34       401,442      67.29      4.37       359,317    76.64      3.95

Jumbo certificates of
  deposit..................      105,530    18.35      6.93       195,176      32.71      6.71       109,497    23.36      5.78
                             -----------  -------    ------    ----------   --------   -------    ----------   ------   -------

Total deposits.............  $   575,235   100.00 %    4.81 %  $  596,618     100.00 %    5.13 %  $  468,814   100.00 %    4.38
                             ===========  =======    ======    ==========   ========   =======    ==========   ======   =======
</TABLE>



         At December 31, 2001, the Company had $78,485,000 in certificate of
deposit accounts in amounts of $100,000 or more maturing as follows:

<TABLE>
            <S>                                                                   <C>
              Three months or less..............................................    $ 15,160
              Over three through six months.....................................      20,133
              Over six through 12 onths.........................................      25,820
              Over 12 months....................................................      17,372
                                                                                     -------
              Total.............................................................    $ 78,485
                                                                                     =======
</TABLE>



         BORROWINGS. Patriot utilizes borrowings as a source of funds for its
growth strategy and its asset/liability management. Patriot is eligible to
obtain advances from the FHLB upon the security of certain loan portfolios,
mortgage-backed securities, and investment securities, provided certain
standards related to creditworthiness have been met. FHLB advances are made
pursuant to several different credit programs, each of which has its own
interest rate and range of maturities. The maximum amount that the FHLB will
advance to member institutions fluctuates from time to time in accordance with
the policies of the FHLB. Patriot also uses repurchase agreements as a funding
source. Repurchase agreements are generally short-term obligations
collateralized by government agency and other securities.

         During 2001, FHLB advances increased approximately $70 million while
repurchase agreements decreased approximately $80 million. This shift in the
composition of the borrowing portfolio was the result of a strategy to extend
the overall maturity of borrowings.



                                       27
<PAGE>












         The following table presents certain information regarding borrowed
funds:

<TABLE>
<CAPTION>
                                                                                   AT DECEMBER 31,
                                                  --------------------------------------------------------------------------------
                                                            2001                        2000                        1999
                                                  -------------------------    -----------------------    ------------------------
                                                                  AVERAGE                     AVERAGE                    AVERAGE
                                                    BALANCE        RATE          BALANCE       RATE         BALANCE        RATE
                                                  -------------  ----------    ------------   --------    -------------  ---------
<S>                                              <C>             <C>           <C>            <C>        <C>             <C>
FHLB advances...................................  $    387,179        5.57 %   $   317,186        5.67 %  $    412,692       5.28 %
Repurchase agreements...........................            --        0.00          80,651        6.48         137,103       5.36
Trust Preferred.................................        18,000       10.59          19,000       10.62          19,000      10.30
                                                  ------------   ---------     -----------    --------    ------------   --------
     Total borrowings outstanding...............  $    405,179        5.79 %   $   416,837        6.06 %  $    568,795       5.47 %
                                                  ============   =========     ===========    ========    ============   ========

Short-term (less than 1 year)...................  $     70,000        6.31 %   $    80,651        6.13 %  $    236,206       5.50 %
Long-term (over 1 year).........................       335,179        5.68         336,186        5.97         332,589       5.44
                                                  ------------   ---------     -----------    --------    ------------   ---------
     Total borrowings outstanding...............  $    405,179        5.79 %   $   416,837        6.06 %  $    568,795       5.47 %
                                                  ============   =========     ===========    ========    ============   ========
</TABLE>


         STOCKHOLDERS' EQUITY. Total stockholders' equity was $61,706,000 at
December 31, 2001 compared to $51,800,000 at December 31, 2000. The increase was
primarily a result of net income less cash dividends paid and an increase in
accumulated other comprehensive income.

                         LIQUIDITY AND CAPITAL RESOURCES

         LIQUIDITY. Patriot's primary sources of funds are deposits, principal
and interest payments on loans, principal and interest payments on investment
and mortgage-backed securities, FHLB advances and repurchase agreements. While
maturities and scheduled amortization of loans and investment and
mortgage-backed securities are predictable sources of funds, deposit inflows and
loan and mortgage-backed security prepayments are greatly influenced by economic
conditions, general interest rates and competition. Therefore, Patriot manages
its balance sheet to provide adequate liquidity based upon various economic,
interest rate and competitive assumptions and in light of profitability
measures.

         During 2001, significant liquidity was provided by investment
securities maturities and mortgage-backed securities repayments of $96,000,000,
mortgage loan repayments of $53,000,000, and core deposit growth of $46,000,000.
The funds provided by these activities were utilized to pay off $158,000,000 of
Patriot's more costly wholesale certificates of deposit and increase its
investment in commercial loans and leases by $42,000,000.

         At December 31, 2001, Patriot had outstanding loan commitments of
$79,507,000. Patriot anticipates that it will have sufficient funds available to
meet its loan commitments. Certificates of deposit that are scheduled to mature
in one year or less from December 31, 2001, totaled $218,189,000. Based upon
historical experience, Patriot expects that substantially all of the maturing
certificates of deposit will be retained at maturity, excluding wholesale
certificates in the amount of $47,080,000.

CAPITAL RESOURCES. FDIC regulations currently require companies to maintain a
minimum leverage capital ratio of not less than 3% of tier 1 capital to total
adjusted assets, a tier 1 capital ratio of not less than 4% of risk-adjusted
assets, and a minimum risk-based total capital ratio (based upon credit risk) of
not less than 8%. The FDIC requires a minimum leverage capital requirement of 3%
for institutions rated composite 1 under the CAMEL rating system. For all other
institutions, the minimum leverage capital requirement is 3% plus at least an
additional 1% to 2% (100 to 200 basis points). A bank is considered "well
capitalized" if it maintains a minimum leverage capital ratio of not less than
5% of tier 1 capital to total adjusted assets, a tier 1 capital ratio of not
less than 6% of risk adjusted assets, and a minimum risk-based total capital
ratio (based upon credit risk) of not less than 10%. Patriot bank has
voluntarily agreed with its regulators to maintain capital ratios at least equal
to well-capitalized standards and to maintain a tier 1 leverage ratio of at
least 6%. At December 31, 2001, Patriot Bank's and Patriot Bank Corp.'s capital
ratios exceeded all requirements to be considered well capitalized. At December
31, 2001, Patriot Bank met these ratio requirements. The following table sets
forth the capital ratios of Patriot Bank Corp., Patriot Bank and the current
regulatory requirements at December 31, 2001:



                                       28
<PAGE>

<TABLE>
<CAPTION>
                                                                                                 TO BE WELL
                                                                           FOR CAPITAL         CAPITALIZED UNDER
                                                     ACTUAL             ADEQUACY PURPOSES  PROMPT CORRECTIVE ACTION
                                                     ------             -----------------  ------------------------
                                                AMOUNT     RATIO        AMOUNT     RATIO     AMOUNT         RATIO
                                                ------     -----        ------     -----     ------         -----
As of  December 31, 2001                                        (DOLLARS IN THOUSANDS)
<S>                                            <C>        <C>          <C>         <C>      <C>            <C>
    Total  capital (to risk weighted assets)

    Patriot Bank Corp.                         $74,178     11.54%       $51,442     8%      $64,302          10%
    Patriot Bank                                73,134     11.39%        51,355     8%       64,194          10%

    Tier I capital (to risk-weighted assets)

    Patriot Bank Corp.                          67,436     10.49%        25,721     4%       38,581           6%
    Patriot Bank                                65,976     10.28%        25,678     4%       38,517           6%

     Tier I capital (to average assets)

    Patriot Bank Corp.                          67,436      6.45%        41,821     4%       52,276           5%
    Patriot Bank                                65,976      6.31%        41,821     4%       52,276           5%
</TABLE>


         MANAGEMENT OF INTEREST RATE RISK. The principal objective of Patriot's
interest rate risk management function is to evaluate the interest rate risk
included in certain on and off balance sheet accounts, determine the level of
risk appropriate given Patriot's business focus, operating environment, capital
and liquidity requirements and performance objectives, and manage the risk
consistent with Board approved guidelines. Through such management, Patriot
seeks to reduce the vulnerability of its net interest income to changes in
interest rates. Patriot monitors its interest rate risk as such risk relates to
its operating strategies. Patriot's Board of Directors has established an
Asset/Liability Committee comprised of senior management and directors, which is
responsible for reviewing its asset/liability and interest rate position and
making decisions involving asset/liability considerations. The Asset/Liability
Committee meets regularly and reports trends and Patriot's interest rate risk
position to the Board of Directors.

         The Company uses three complementary methods to analyze and measure
interest rate risk as part of the overall management of interest rate risk. They
are income simulation modeling, estimates of economic value of equity, and
static gap analysis. The combination of these three methods provides a
reasonably comprehensive summary of the levels of interest rate risk of the
Company when exposed to time factors and changes in interest rate environments.

         Income simulation modeling is utilized in measuring Patriot's interest
rate risk and managing its interest rate sensitivity. Income simulation
considers not only the impact of changing market interest rates on forecasted
net interest income, but also other factors such as yield curve relationships,
the volume and mix of assets and liabilities, customer preferences and general
market conditions.

         Through the use of income simulation modeling the company has
calculated an estimate of net interest income for the year ending December 31,
2002, based upon the assets, liabilities and off-balance sheet financial
instruments in existence at December 31, 2001. Patriot has also estimated
changes to that estimated net interest income based upon interest rates rising
or falling in monthly increments ("rate ramps"). Rate ramps assume that all
interest rates increase or decrease in monthly increments evenly throughout the
period modeled. The following table reflects the estimated percentage change in
estimated net interest income for the year ending December 31, 2002 resulting
from changes in interest rates.

<TABLE>
<CAPTION>
            Rate ramp to interest rates                 % change
         ----------------------------------            -----------
                <S>                                      <C>
                    +2%                                     .98%

                    -2%                                   (2.69%)
</TABLE>

         Economic value of equity (EVE) estimates the discounted present value
of asset and liability cash flows. Discount rates are based upon market prices
for comparable assets and liabilities. As part of this evaluation the company
has contracted with an independent consultant to perform an extensive core
deposit analysis to



                                       29
<PAGE>


appropriately estimate the discounted present value of the retail deposit
franchise. Upward and downward rate shocks are used to measure volatility in
relation to such interest rate movements in relation to an unchanged
environment. This method of measurement primarily evaluates the longer term
repricing risks and options in the Company's balance sheet. The Company has
established policy limits for upward and downward rate shocks of 20% of economic
value of equity at risk for every 100 basis points of interest rate shock.
Additionally the Company has a policy limit that the ratio of EVE adjusted
equity to EVE adjusted assets will be maintained above a 5% ratio. The following
table reflects the estimated economic value of equity at risk and the ratio of
EVE adjusted equity to EVE adjusted assets at December 31, 2001, resulting from
shocks to interest rates.

<TABLE>
<CAPTION>
                                          Percent change  EVE Equity/
                             Rate shock    from base      EVE Assets
                             -----------   ---------      ----------
                             <S>           <C>            <C>
                                  +2%       -16.59%         10.34%

                                  +1%        -6.36%         11.27%

                                 Base                       11.70%

                                  -1%        -7.69%         10.65%

                                  -2%       -22.72%          8.82%
</TABLE>


         The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is said to be interest rate sensitive within a specific time period if
it will mature or reprice within that time period. The interest rate sensitivity
gap is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific time period and the amount of
interest-bearing liabilities maturing or repricing within that time period.

         The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 2001, which are
anticipated, based upon certain assumptions, to reprice or mature in each of the
future time periods shown. Except as stated below, the amount of assets and
liabilities shown which reprice or mature during a particular period were
determined in accordance with the earlier of term to repricing or the
contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at December
31, 2001, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three-month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be repaid and/or repriced as a result of contractual amortization
and anticipated prepayments of adjustable-rate loans and fixed-rate loans and as
a result of contractual rate adjustments on adjustable-rate loans.


                                       30

<PAGE>
<TABLE>
<CAPTION>
                                                                       At December 31, 2001
                                     ---------------------------------------------------------------------------------------------
INTEREST-EARNING ASSETS(1):             3 Months    More than 3   More than 6  More than 1  More than 3    More than 5    Total
                                         or Less    Months to 6   Months to 1   Year to 3    Year to 5        Years
                                                      Months         Years        Years        Years
                                       ----------  ------------- ------------- ----------  -------------  -------------  --------

<S>                                    <C>          <C>           <C>          <C>         <C>           <C>           <C>
    Interest earning deposits               7,248           --           --           --           --            --         7,248
    Investment and mortgage-backed         41,088       29,809       15,031       34,263       23,284       147,774       291,249
      securities, net (2)(5)
    Loans receivable, net(3)(5)           139,791       50,256       81,129      212,871      121,414        44,131       649,592
                                       -----------  -----------   ----------   ----------  -------------------------    ----------
      Total interest-earning assets       188,127       80,065       96,160      247,134      144,698       191,905       948,089

    Non-interest-earning assets                --           --           --           --           --        61,981        61,981
                                       -----------  -----------   ----------   ----------  -----------   -----------    ----------
      Total assets                        188,127       80,065       96,160      247,134      144,698       253,886     1,010,070
                                       ===========  ===========   ==========   ==========  ===========   ===========    ==========

INTEREST-BEARING LIABILITIES:
    Money market and passbook               6,315        6,315       12,631       25,576       19,087       110,824       180,748
      savings accounts(6)
    Demand and NOW accounts                 1,383        1,383        2,766        1,353        1,205        61,096        69,186
    Certificate accounts                   72,290       57,617       88,269       55,851        7,652         2,250       283,929
    Borrowings                                832       40,832       31,664       90,000       72,003       173,177       408,508
                                       -----------  -----------   ----------   ----------  -----------   -----------    ----------
     Total interest-bearing                80,820      106,147      135,330      172,780       99,947       347,347       942,371
     liabilities

    Non-interest-bearing                       --           --           --           --        5,993         5,993            --
    liabilities

   Equity                                      --           --           --           --           --        61,706        61,706
                                       -----------  -----------   ----------   ----------  -----------   -----------    ----------

      Total liabilities and equity         80,820      106,147      135,330      172,780       99,947       415,046     1,010,070
                                       ===========  ===========   ==========   ==========  ===========   ===========    ==========

    Interest sensitivity gap(4)           107,307     (26,082)     (39,170)       74,354       44,751     (161,160)
    Cumulative interest                   107,307       81,225       42,055      116,409      161,160            --
       sensitivity gap
    Cumulative interest                    10.62%        8.04%        4.16%       11.52%       15.96%         0.00%
       sensitivity gap as a
       percent of total assets
    Cumulative interest-earning           232.77%      143.44%      113.05%      123.51%      127.08%       100.61%
       assets as a percent of
       cumulative interest-
       bearing liabilities
</TABLE>

(1)     Interest-earning assets are included in the period in which the balances
        are expected to be repaid and/ or repriced as a result of anticipated
        prepayments, scheduled rate adjustments, and contractual maturities.

(2)     Includes investment and mortgage-backed securities available for sale
        and held to maturity.

(3)     For purposes of the gap analysis, loans receivable includes
        non-performing loans and is reduced for the allowance for loan losses,
        and unamortized discounts and deferred loan fees.

(4)     Interest sensitivity gap represents the difference between total
        interest-earning assets and total interest-bearing liabilities.

(5)     Annual prepayment rates for loans and mortgage-backed securities have
        been estimated utilizing historical analysis and industry expectations.

(6)     Money market accounts, savings accounts, and NOW accounts decay rates
        have been estimated based upon a historical analysis of core deposit
        trends.


         As shown above, the company has a positive gap (interest sensitive
assets are greater than interest sensitive liabilities) within the next year,
which generally indicates that an increase in rates may lead to an increase in
net interest income and a decrease in rates may lead to a decrease in net
interest income. Interest sensitivity gap analysis measures whether assets or
liabilities may reprice but does not capture the ability to reprice or the range
of potential repricing on assets or liabilities. Thus indications based on a
positive or negative gap position need to be analyzed in conjunction with other
interest rate risk management tools.

         The Company's management believes that the assumptions and combination
of methods utilized in evaluating estimated net interest income are reasonable;
however, the interest rate sensitivity of the company's assets, liabilities and
off-balance sheet financial instruments as well as the estimated effect of
changes in interest rates on estimated net interest income could vary
substantially if different assumptions are used or actual experience differs
from the experience on which the assumptions were based.


                                       31
<PAGE>
                                 QUARTERLY DATA

The following table presents selected quarterly consolidated financial data:

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                           ---------------------------------------------------------------------------------------
                                           DEC. 31,   SEPT. 30,  JUNE 30,   MARCH 31,   DEC. 31,    SEPT. 30,  JUNE 30,   MARCH 31,
                                             2001       2001       2001       2001        2000        2000       2000       2000
                                           --------   --------   --------   --------    --------    --------   --------   --------
                                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>        <C>        <C>        <C>         <C>         <C>        <C>        <C>
Total interest income ..................   $ 17,537   $ 18,507   $ 19,187   $ 20,619    $ 20,870    $ 21,530   $ 21,249   $ 20,494
Total interest expense .................     11,220     12,520     13,592     14,877      15,766      16,162     15,362     14,181
                                           --------   --------   --------   --------    --------    --------   --------   --------

Net interest income ....................      6,317      5,987      5,595      5,742       5,104       5,368      5,887      6,313
Provision for credit losses ............        550        500        500        450         300         225        300        300
                                           --------   --------   --------   --------    --------    --------   --------   --------
Net interest income after pro
vision for credit losses ...............      5,767      5,487      5,095      5,292       4,804       5,143      5,587      6,013
Other income ...........................      1,951      1,991      1,947      2,003       1,561       2,276      1,780      1,507
Other expenses .........................      5,434      5,271      4,955      5,108       9,634       5,904      5,724      5,582
                                           --------   --------   --------   --------    --------    --------   --------   --------
Income (loss) before taxes and
cumulative effect of change in
accounting principle ...................      2,284      2,207      2,087      2,187      (3,269)      1,515      1,643      1,938
Income tax .............................        640        629        596        597      (1,256)        287        337        450
                                           --------   --------   --------   --------    --------    --------   --------   --------
Income before cumulative effect of
change in accounting principle .........   $  1,644   $  1,578   $  1,491   $  1,590    $ (2,013)   $  1,228   $  1,306   $  1,488
Cumulative effect of change in
accounting principle, net of
($105,000) in income tax ...............         --         --         --       (204)         --          --         --         --
                                           ========   ========   ========   ========    ========    ========   ========   ========
Net Income .............................   $  1,644   $  1,578   $  1,491   $  1,386    $ (2,013)   $  1,228   $  1,306   $  1,488
                                           ========   ========   ========   ========    ========    ========   ========   ========

DILUTED EARNINGS PER SHARE:
--------------------------
Income before cumulative effect of
change in accounting principle .........   $   0.27   $   0.26   $   0.25   $   0.27    $  (0.34)   $   0.21   $   0.22   $   0.25
Cumulative effect of change in
accounting principle ...................         --         --         --       (.03)         --          --         --         --
                                           --------   --------   --------   --------    --------    --------   --------   --------
Net Income .............................   $   0.27   $   0.26   $   0.25   $   0.24    $  (0.34)   $   0.21   $   0.22   $   0.25
                                           ========   ========   ========   ========    ========    ========   ========   ========

Dividends per share ....................   $   .093   $   .093   $   .093   $   .093    $   .092    $   .092   $   .090   $   .087
Market Prices - High ...................   $  10.90   $  11.95   $  10.30   $   8.19    $   6.88    $   7.50   $  13.50   $  15.00
                Low ....................   $  10.00   $   9.15   $   7.53   $   6.81    $   5.94    $   6.50   $   6.88   $   8.50
</TABLE>


                                       32
<PAGE>


      RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999

         SUMMARY. For the year ended December 31, 2000, Patriot reported net
income of $2,009,000 or $.34 diluted earnings per share. Included in the year
2000 earnings are non-recurring, after-tax charges totaling $3,224,000 which
includes a one time restructuring charge of $1,453,000, non-recurring expenses
of $986,000, both related to the restructuring of Patriot's mortgage banking
operation, and $785,000 related to the resignation of Patriot's former President
and Chief Executive Officer. For the year ended December 31, 1999, Patriot
reported net income of $2,200,000 or $.37 diluted earnings per share including
costs related to the launch of an internet initiative of $3,349,000 ($5,067,000
before tax). Patriot's core banking operations exclusive of that internet
initiative for the year ended December 31, 1999, generated $5,549,000 or $.94
diluted earnings per share. Excluding the non-recurring charges, return on
average equity was 10.30% for 2000 compared to 10.10% for 1999.

         NET INTEREST INCOME. Net interest income for 2000 was $22,672,000
compared to $24,034,000 in 1999. The yield on Patriot's interest-earning assets
continued it's favorable trend and increased to 7.82% for the year 2000 compared
to 7.35% for 1999 as a result of growth in higher-yielding commercial loan and
lease portfolios. The cost of Patriot's interest-bearing liabilities was 5.58%
for 2000 compared to 4.96% for 1999. The increase in funding costs resulted from
generally higher interest rates, especially with regard to short-term funding.
Patriot's asset growth resulted from the origination of commercial loans and
leases which was mostly funded through the run-off of mortgage loans. Overall,
Patriot's net interest margin decreased to 2.24% for 2000 compared to 2.39% in
1999.

         Interest on loans was $55,531,000 for 2000 compared to $45,590,000 for
1999. The average balance of loans in 2000 was $666,171,000 with an average
yield of 8.33% compared to an average balance of $571,966,000 with an average
yield of 7.97% in 1999. The increase in average balance was due to increased
originations of commercial loans and leases. Also, the average balance of
mortgage loans was maintained at a consistent level during 2000 as most mortgage
loan originations were sold; additionally, pursuant to an interest rate risk
strategy Patriot sold approximately $50,000,000 in residential mortgage loans
from the portfolio during the third quarter of 2000. The increase in average
yield was primarily a result of commercial loans and leases representing a
larger percentage of the loan portfolio.

         Interest on Patriot's investment portfolio (investment and
mortgage-backed securities) was $28,190,000 for 2000 compared to $29,656,000 for
1999. The average balance of the investment portfolio was $412,712,000 with an
average yield of 7.17% for 2000 compared to an average balance of $457,093,000
with an average yield of 6.78% for 1999. The decrease in average balance was
primarily due to normal amortization as Patriot has allowed investment and
mortgage-backed securities to run-off as part of a strategy to deleverage the
balance sheet. The increase in average yield was primarily a result of
repricings of adjustable rate securities.

         Interest on total deposits was $30,714,000 for 2000 compared to
$20,565,000 for 1999. The average balance of total deposits was $596,618,000
with an average cost of 5.15% for 2000 compared to an average balance of
$468,814,000 with an average cost of 4.38% for 1999. The increase in average
balance was primarily the result of an increase in Patriot's brokered jumbo
deposit program, coupled with aggressive marketing of core deposits (money
market, checking and savings accounts). The increase in average cost was the
result of the increase in jumbo deposits and market pricing on retail deposits.
Total brokered jumbo deposits approximated $204,917,000 and $136,113,000 at
December 31, 2000 and 1999, respectively. The average balance of retail deposits
(total deposits less brokered jumbo deposits) was $401,441,000 with an average
cost of 4.36% for 2000 compared to an average balance of $359,317,000 with an
average cost of 3.96% for 1999. The increase in average balance and yield was
primarily the result of Patriot's brokered jumbo deposit program, offset by
growth of core deposits.

         Interest on borrowings was $30,757,000 in 2000 compared to $30,945,000
in 1999. The average balance of borrowings was $504,666,000 with an average cost
of 6.01% for 2000 compared to an average balance of $568,922,000 with an average
cost of 5.43% for 1999. The decrease in average balance was due to less use of
borrowings to fund the growth in the balance sheet. The increase in average cost
was due to generally higher interest rates.


                                       33
<PAGE>



         PROVISION FOR CREDIT LOSSES. The provision for credit losses was
$1,125,000 for 2000 and $1,200,000 for 1999. During the third quarter of 2000,
Patriot sold over $50,000,000 in mortgage loans. As a result of the sale and
Patriot's continued strong asset quality ratios, the provision was reduced
accordingly.

         NON-INTEREST INCOME. Total non-interest income was $7,124,000 for 2000
compared to $5,945,000 for 1999. The increase was primarily due to an increased
emphasis on recurring non-interest income including loan and deposit fees, ATM
fees and mortgage banking activities.

         NON-INTEREST EXPENSE. Total non-interest expense was $26,844,000 for
2000 compared to $26,402,000 for 1999. Non-interest expense in 2000 included
$785,000 related to the resignation of Patriot's former President and Chief
Executive Officer, a one time restructuring charge of $1,453,000 and
non-recurring expenses of $986,000 related to the restructuring of Patriot's
mortgage company and call center. Non-interest expense in 1999 included
$5,067,000 in costs incurred related to the internet initiative. The increase in
recurring non-interest expense reflects growth in Patriot's operations.
Patriot's efficiency ratio was 73.70% in 2000 compared to 71.17% in 1999
exclusive of the non-recurring charges in each year.

         INCOME TAX PROVISION. The income tax provision was $(182,000) for 2000
compared to $177,000 for 1999. The effective tax rate was (9.96)% for 2000
compared to 7.40% for 1999. The decrease in the effective tax rate was the
result of the tax impact of the non-recurring costs in 2000 resulting in an
increase in Patriot's proportion of tax exempt income to net income. Patriot's
tax exempt income resulted from tax planning strategies, which include
investments in tax-exempt securities. Excluding the non-recurring costs in 2000
and 1999, Patriot's effective tax rate was 22.03% and 25.53% for 2000 and 1999,
respectively.


                                       34
<PAGE>


ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         The discussion concerning the effects of interest rate changes on the
Company's estimated net interest income for the year ending December 31, 2002,
set forth under "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Management of Interest Rate Risk" in Item 7 hereof, is
incorporated herein by reference.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                                MANAGEMENT REPORT

Financial Statements
Patriot Bank Corp. (the "Company") is responsible for the preparation, integrity
and fair presentation of its published financial statements as of December 31,
2001, and the year then ended. The financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America, and as such, include amounts, some of which are based on judgments and
estimates of management.

Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining
effective internal control over financial reporting presented in conformity with
accounting principles generally accepted in the United States of America and the
Federal Financial Institutions Examination Council instructions for Consolidated
Reports of Condition and Income ("call report instructions"). This internal
control contains monitoring mechanisms, and actions are taken to correct
deficiencies identified.

There are inherent limitations in the effectiveness of any internal control,
including the possibility of human error and the circumvention or overriding of
controls. Accordingly, even effective internal controls can provide only
reasonable assurance with respect to financial statement preparation. Further,
because of changes in conditions, the effectiveness of internal control may vary
over time.

Management assessed the Company's internal control over financial reporting
presented in conformity with accounting principles generally accepted in the
United States of America and call report instructions as of December 31, 2001.
This assessment was based on criteria for effective internal control over
financial reporting described in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission. Based
on this assessment, management believes that, as of December 31, 2001, the
Company maintained effective internal control over financial reporting presented
in conformity with accounting principles generally accepted in the United States
of America and call report instructions.

Compliance With Laws And Regulations
Management is also responsible for compliance with the federal and state laws
and regulations concerning dividend restrictions and federal laws and
regulations concerning loans to insiders designated by the Federal Deposit
Insurance Corporation as safety and soundness laws and regulations.

Management assessed its compliance with the designated laws and regulations
relating to safety and soundness. Based on this assessment, management believes
that the Company complied, in all significant respects, with the designated laws
and regulations relating to safety and soundness for the year ended December 31,
2001.

         ------------------------           ----------------------
         Richard A. Elko                    James G. Blume
         President and                      Senior Vice President and
         Chief Executive Officer            Chief Financial Officer


                                       35
<PAGE>


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Patriot Bank Corp.:

We have audited the accompanying consolidated balance sheets of Patriot Bank
Corp. and Subsidiaries (the "Company") as of December 31, 2001 and 2000, and the
related consolidated statements of income, stockholders' equity, cash flows and
comprehensive income for each of the years in the three year period ended
December 31, 2001. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the years in the three year period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.

As discussed in Note 1 to the consolidated financial statements, the company
adopted Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" in 2001.

KPMG LLP
January 22, 2002


                                       36
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                        (in thousands, except share data)

<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,
                                                                            -----------------------------------------
                                                                                   2001                 2000
                                                                            -------------------  --------------------

<S>                                                                       <C>                   <C>

ASSETS
Cash and due from banks..................................................   $       14,218       $        2,910
Interest-earning deposits in other financial institutions................            7,248               24,166
                                                                            -------------------  --------------------

         Total cash and cash equivalents.................................           21,466               27,076

Securities available for sale............................................          247,612               84,889
Securities held to maturity  (market  value of $43,078 and $299,685 at
     December 31, 2001 and 2000, respectively)...........................           43,637              302,489
Loans held for sale......................................................            6,652                8,564
Loans and leases receivable, net of allowances for credit losses of
     $6,199 and $5,839 at December 31, 2001 and 2000, respectively.......          642,940              650,640
Premises and equipment, net..............................................            6,758                7,574
Accrued interest receivable..............................................            3,988                5,125
Real estate owned and other repossessed property.........................              349                  173
Cash surrender value life insurance......................................           17,305               16,483
Goodwill and other intangible assets.....................................           12,050               13,274
Other assets.............................................................            7,313                8,618
                                                                            -------------------  --------------------
         Total assets....................................................   $    1,010,070       $    1,124,905
                                                                            ===================  ====================

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits.................................................................   $      533,863       $      649,958
FHLB Advances............................................................          387,179              317,186
Securities sold under repurchase agreements..............................            ----                80,651
Advances from borrowers for taxes and insurance..........................            3,329                3,893
Trust Preferred .........................................................           18,000               19,000
Other liabilities........................................................            5,993                2,417
                                                                            -------------------  --------------------
         Total liabilities...............................................          948,364            1,073,105
                                                                            -------------------  --------------------
Preferred stock, $0.01 par value, 2,000,000 shares authorized,
     none issued at December 31, 2001 and 2000, respectively.............             ----                 ----
Common stock, no par value, 10,000,000 shares authorized, 6,555,436
     and 6,555,436 shares issued at December 31, 2001 and 2000,                       ----                 ----
     respectively........................................................
Additional paid-in capital...............................................           57,867               58,174

Common stock acquired by ESOP, 334,225 and 359,934 shares at cost at
     December 31, 2001 and 2000, respectively............................           (1,819)              (1,999)
Common stock acquired by MRP, 5,650 and 57,195 shares
     at amortized cost at December 31, 2001 and 2000, respectively.......              (68)                (241)
Retained earnings........................................................            8,598                4,833
Treasury stock acquired, 235,833 and 353,660 shares
     at cost at December 31, 2001 and 2000, respectively.................           (3,051)              (4,043)
Accumulated other comprehensive income  (loss)...........................              179               (4,924)
                                                                           -------------------  --------------------
         Total stockholders' equity......................................           61,706               51,800
                                                                            -------------------  --------------------
         Total liabilities and stockholders' equity......................      $ 1,010,070       $    1,124,905
                                                                            ===================  ====================

</TABLE>

        The accompanying notes are an integral part of these statements.


                                       37
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                           --------------------------------------
                                                                             2001           2000         1999

                                                                           ------------  -----------  -----------

<S>                                                                  <C>                  <C>           <C>
INTEREST INCOME
      Interest-earning deposits.....................................     $    508        $    422       $   298
      Securities....................................................       21,220          28,190        29,656
      Loans and leases..............................................       54,122          55,531        45,590
                                                                           ------          ------        ------
           Total interest income....................................       75,850          84,143        75,544
                                                                          =======         =======       =======
INTEREST EXPENSE
       Deposits.....................................................       27,690          30,714        20,565
       Short-term borrowings........................................        2,387          16,464        13,343
       Long-term borrowings.........................................       22,132          14,293        17,602
                                                                           ------          ------        ------

Total interest expense..............................................       52,209          61,471        51,510
                                                                           ======          ======        ======

        Net interest income before provision for
            credit losses...........................................       23,641          22,672        24,034
        Provision for credit losses.................................        2,000           1,125         1,200
                                                                           ------          ------        ------

        Net interest income after
            provision for credit losses.............................       21,641          21,547        22,834
                                                                           ------          ------        ------

NON-INTEREST INCOME
        Service fees, charges and other operating income............        5,563           4,934         4,443
        Loss on sale of real estate owned...........................         (20)             (7)           (3)
        Gain on sale of securities available for sale...............          558              1            507
        Mortgage banking activities.................................        1,791           2,196           998
                                                                            -----           -----         -----

             Total non-interest income..............................        7,892           7,124         5,945
                                                                            =====          ======         =====

NON-INTEREST EXPENSE
        Salaries and employee benefits..............................        9,748          12,580        10,606
        Occupancy and equipment.....................................        4,538           6,663         4,108
        Professional services.......................................          960           1,221           787
        Information Services........................................          256             196           179
        Advertising.................................................          822             652           817
        Deposit processing..........................................          615             659           605
        Amortization of Goodwill and other intangible assets........        1,216           1,458           992
        Office supplies & postage...................................          653             735           641
        MAC expense.................................................          481             603           377
        Internet initiative ........................................            -               -         5,067
        Other operating expenses....................................        1,479           2,077         2,223
                                                                           ------           -----        ------

            Total non-interest expense..............................       20,768          26,844        26,402
                                                                           ======          ======        ======


Income before taxes and cumulative effect of change in
       accounting principle ........................................        8,765           1,827         2,377
Income taxes........................................................        2,462           (182)           177
                                                                          -------        --------       -------
Income before cumulative effect of change in accounting principle ..     $  6,303        $  2,009       $ 2,200
Cumulative effect of change in accounting principle, net of
       ($105,000)in Income tax......................................        (204)              --            --
                                                                          -------        --------       -------
Net income..........................................................     $  6,099        $  2,009       $ 2,200
                                                                          =======         =======       =======

Basic Earning Per Share:
Income before cumulative effect of change in accounting principle ..     $   1.07        $   0.35       $  0.38
Cumulative effect of change in accounting principle.................        (.03)              --            --
       Net Income                                                        $   1.04        $   0.35       $  0.38
                                                                          =======        ========       =======

Diluted Earnings Per Share:
Income before cumulative effect of change in accounting principle ..     $  1.05         $   0.34       $  0.37
Cumulative effect of change in accounting principle.................        (.03)              --            --
                                                                          -------        --------       -------
       Net Income                                                        $   1.02        $   0.34       $  0.37
                                                                           ======          ======         =====
Dividends per share................................................      $   0.37        $   0.36       $  0.32
                                                                          -------        --------       -------
</TABLE>


        The accompanying notes are an integral part of these statements.

                                       38
<PAGE>
                       PATRIOT BANK CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                                         Accumulated
                                                  Additional                                                Other
                                      Number of    paid-in                        Retained    Treasury   Comprehensive
                                      Shares(1)    capital     ESOP       MRP     earnings     stock        Income       Total
                                      ---------   ---------   -------    -----    --------     ------    -------------  -------
<S>                                  <C>         <C>         <C>        <C>      <C>        <C>         <C>            <C>
Balance at January 1, 1999             4,347     $ 60,404    $(2,285)   $(971)   $ 4,220    $(22,963)     $ 3,855      $42,260
                                       -----     --------    -------    -----    -------    --------      -------      -------
Common stock issued                        3           26       ----     ----       ----        ----         ----           26
Common stock acquired by MRP              (3)        ----       ----      (26)      ----        ----         ----          (26)
Treasury stock purchased                (377)        ----       ----     ----       ----      (4,808)        ----       (4,808)
Treasury stock retired                  ----      (23,531)      ----     ----       ----      23,531         ----         ----
Common stock issued for
     Business combination               1,640       21,047       ----     ----       ----        ----         ----       21,047
Release and amortization of MRP            48           53       ----      359       ----        ----         ----          412
Release of ESOP shares                     26          118        144     ----       ----        ----         ----          262
Sale of stock associated with Employee
     Stock Purchase Plan                    7         ----       ----     ----       ----          68         ----           68
Change in unrealized gains
     on securities available
     For sale, net of taxes              ----         ----       ----     ----       ----        ----       (9,990)      (9,990)
Net income                               ----         ----       ----     ----      2,200        ----         ----        2,200
Cash dividends paid                      ----         ----       ----     ----     (1,683)       ----         ----       (1,683)
                                        -----     --------    -------    -----    -------    --------      -------      -------
Balance at December 31, 1999            5,691     $ 58,117    $(2,141)   $(638)   $ 4,737    $ (4,172)     $(6,135)     $49,768
                                        =====     ========    =======    =====    =======    ========      =======      =======
Common stock retired by MRP              ----          (20)      ----     ----       ----        ----         ----          (20)
Common stock forfeited by MRP            ----         ----       ----       20       ----        ----         ----           20
Release and amortization of MRP            52            3       ----      377       ----        ----         ----          380
Release of ESOP shares                     25           74        142     ----       ----        ----         ----          216
Sale of stock associated with Employee
     Stock Purchase Plan                   16         ----       ----     ----       ----         129         ----          129
Change in unrealized gains
     on securities available
     for sale, net of taxes              ----         ----       ----     ----       ----        ----        1,211        1,211
Net income                               ----         ----       ----     ----      2,009        ----         ----        2,009
Cash dividends paid                      ----         ----       ----     ----     (1,913)       ----         ----       (1,913)
                                        -----      -------    -------    -----    -------    --------      -------      -------
Balance at December 31, 2000            5,784      $58,174    $(1,999)   $(241)   $ 4,833    $ (4,043)     $(4,924)     $51,800
                                        =====      =======    =======    =====    =======    ========      =======      =======
Release and amortization of MRP            52          42        ----      173       ----        ----         ----          215
Release of ESOP shares                     26          58         180     ----       ----        ----         ----          238
Sale of stock associated with Employee
     Stock Purchase Plan                    7        ----        ----     ----       ----          59         ----           59
Change in unrealized gains
     on securities available
     for sale, net of taxes              ----        ----        ----     ----       ----        ----      $ 5,103        5,103
Exercise of stock options                 111        (407)       ----     ----       ----         933         ----          526
Net income                               ----        ----        ----     ----      6,099        ----         ----        6,099
Cash dividends paid                      ----        ----        ----     ----     (2,334)       ----         ----       (2,334)
                                        -----     --------    -------   ------    -------    --------      -------      -------
Balance at December 31, 2001            5,980     $57,867     $(1,819)    $(68)   $ 8,598    $ (3,051)         179      $61,706
                                        =====     ========    =======   =======   =======    ========      =======      =======
</TABLE>



        The accompanying notes are an integral part of these statements.

                                       39
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                              Year Ended December 31,
                                                                              -----------------------
                                                                          2001         2000         1999
                                                                       -----------  -----------  -----------
OPERATING ACTIVITIES
<S>                                                                     <C>          <C>          <C>
    Net Income                                                          $   6,099    $   2,009    $   2,200
    Adjustments to reconcile net income to net cash provided by (used
    in) operating activities
        Amortization and accretion of
           Deferred loan origination fees                                    (310)        (529)          70
           Premiums and discounts                                          (1,914)      (3,128)      (2,836)
           MRP shares                                                         215          380          412
           Goodwill and other intangibles                                   1,216        1,458          992
        Provision for credit losses                                         2,000        1,125        1,200
        Release of ESOP shares                                                238          216          262
        Gain on sale of investment securities                                (249)          (1)        (507)
        Loss on sale of real estate owned                                      20            7            3
        Write down of real estate owned                                        43           16           --
        Depreciation of premises and equipment                              1,546        2,686        1,751
        Mortgage loans originated for sale                                (81,371)    (125,273)     (63,796)
        Mortgage loans sold                                                83,283      170,025       64,400
        Deferred income tax expense (benefit)                              (1,358)         121       (1,390)
        Increase in cash surrender value of life insurance                   (822)        (783)        (653)
        Decrease (increase) in accrued interest receivable                  1,137         (280)           4
        Decrease in other assets                                               54        3,583          475
        Increase (decrease) in other liabilities                            3,584       (3,835)      (3,548)
                                                                       ----------   ----------   ----------
           Net cash provided by (used in) operating activities             13,411       47,797         (961)
                                                                       ----------   ----------   ----------
INVESTING ACTIVITIES
        Loan originations & principal payments on loans, net                4,109      (77,849)     (69,698)
        Proceeds from the sale of securities - available for sale          50,920        4,625       27,478
        Proceeds from the maturity of securities - available for sale      57,733        4,079       43,030
        Proceeds from the maturity of securities - held to maturity        38,382       45,558       61,276
        Purchase of securities - available for sale                       (41,010)      (1,118)    (107,502)
        Purchase of securities - held to maturity                              --           --      (13,056)
        Purchase of cash surrender value of life insurance                     --           --      (15,047)
        Proceeds from sale of real estate owned                             1,641          366          476
        Cash received in business combinations                                 --           --        9,769
        Purchase of premises and equipment                                   (746)      (1,665)      (4,235)
        Proceeds from sale of premises and equipment                           16        2,431        5,644
                                                                       ----------   ----------   ----------
           Net cash used in investing activities                          111,045      (23,573)     (61,865)
                                                                       ----------   ----------   ----------
FINANCING ACTIVITIES
        Net (decrease) increase in deposits                              (116,095)     149,301       29,437
        (Repayment) proceeds from short term borrowings                   (10,651)    (367,054)      22,582
        Repurchase of trust preferred securities                           (1,000)          --           --
        Proceeds from long term borrowings                                     --      217,000       95,000
        Repayment of long term borrowings                                      (7)      (1,904)    (100,108)
        (Decrease) increase in advances from borrowers for taxes and         (564)        (868)          12
        insurance
        Cash paid for dividends                                            (2,334)      (1,913)      (1,683)
        Proceeds from the sale of stock associated with Employee               59          129           68
        Stock Purchase Plan
        Proceeds from the exercise of stock options                           526           --           -
        Purchase of treasury stock                                             --           --       (4,808)
                                                                       ----------   ----------   ----------
           Net cash (used in) provided by financing activities           (130,066)      (5,309)      40,500
                                                                       ----------   ----------   ----------
        Net (used in) provided by cash and cash equivalents                (5,610)      18,915      (22,326)

Cash and cash equivalents at beginning of year                             27,076        8,161       30,487
                                                                       ----------   ----------   ----------
Cash and cash equivalents at end of year                               $   21,466    $  27,076   $    8,161
                                                                       ==========   ==========   ==========
Supplemental disclosures

     Cash paid for interest                                            $   27,433    $  30,084   $   20,233

     Cash paid for income taxes                                        $     (172)   $   1,254   $    1,193

     Transfers from loans and leases to real estate owned and other    $    1,900    $     258   $      603
     repossessed property

     Transfer of securities (to) from available for sale to (from)     $ (220,471)          --   $  366,628
     held to maturity

     Non-cash assets received in business combinations                         --           --   $   94,302
</TABLE>


        The accompanying notes are an integral part of these statements.


                                       40
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                 (IN THOUSANDS)




<TABLE>
<CAPTION>

                                                                                FOR THE YEAR ENDED DECEMBER 31,
                                                                            -----------------------------------------
                                                                               2001            2000           1999
                                                                            ----------     ----------     -----------

<S>                                                                          <C>          <C>            <C>
Net Income...............................................................    $  6,099     $   2,009       $   2,200
Other comprehensive income, net of tax...................................
   Unrealized gains (losses) on securities...............................
      Unrealized gains associated with change in accounting principle....       3,000
      Unrealized holding gains (losses) arising during the period........       2,267         1,212          (9,655)
      Less: Reclassification adjustment for gains included in net income..       (164)           (1)           (335)
                                                                            -----------   -----------    -----------

Comprehensive income (loss)..............................................   $  11,202    $    3,220       $  (7,790)
                                                                            ===========   ============   ===========

</TABLE>


        The accompanying notes are an integral part of these statements.


                                       41
<PAGE>
                       PATRIOT BANK CORP. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        The following is a description of the significant accounting policies of
Patriot Bank Corp. and Subsidiaries (Patriot). Such accounting and reporting
policies conform with generally accepted accounting principles and predominant
practices within the financial institution industry.

        Patriot, through its subsidiaries, offers a broad range of lending,
depository and related financial services to small businesses and consumers
primarily through 17 community banking offices located in Montgomery, Berks,
Chester, Lehigh, and Northampton counties in Pennsylvania and through direct
mail and various electronic and telephonic means.

        Patriot Bank principally competes with other banking and financial
institutions in its primary market communities. Commercial banks, savings banks,
savings and loan associations, credit unions, brokerage firms, asset management
companies, mutual funds and money market funds actively compete for deposits and
loans. Such institutions, as well as consumer finance and insurance companies,
may be considered competitors of Patriot with respect to one or more of the
services they render.

a. BASIS OF FINANCIAL PRESENTATION

        The accompanying financial statements include the accounts of the parent
company, Patriot Bank Corp. and its subsidiaries: Patriot Bank and its
subsidiaries, Marathon Management Company, Patriot Investment & Insurance
Company, Patriot Commercial Leasing Company, Inc., and Patriot Investment
Company. All material intercompany balances and transactions have been
eliminated in consolidation. In preparing the consolidated financial statements,
management makes estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. Actual results could differ from
those estimates. The principal estimates that are particularly susceptible to
significant change in the near term relate to the allowance for credit losses,
mortgage servicing rights, evaluation of deferred tax assets, and other real
estate owned.

        Management's evaluation of the allowance for credit losses includes,
among other factors, an analysis of historical loss rates, by category, applied
to current loan and lease totals. However, actual losses may be higher or lower
than historical trends, which vary. Actual losses on specified problem loans and
leases, which also are provided for in the valuation, may vary from estimated
loss percentages, which are established based upon a limited number of potential
loss classifications.

        In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This statement as amended by SFAS No. 137
in June 1999 and SFAS No. 138 in June 2000 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives), and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and the resulting
designation. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of certain exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment; (b) a hedge of
the exposure to variable cash flows of a forecasted transaction; or (c) a hedge
of foreign currency exposure. SFAS No. 133, as amended, is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. Patriot adopted
SFAS 133 on January 1, 2001. At the time of adoption, Patriot reclassified
approximately $220,471,000 of fixed rate mortgage backed securities, CMO's and
agency securities from held to maturity to available for sale and equity
resulting in a net of tax increase of approximately $3 million in accumulated
other comprehensive income. Patriot typically has not used derivative
instruments and currently holds no positions that had further impact on
earnings, financial condition or equity. During 2001, Patriot sold $30,333,000
of the securities reclassified resulting in a cumulative change in accounting
principle with a net after tax impact of a $204,000 loss.


                                       42
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, -(CONTINUED)


        In September 2000, the FASB issued SFAS No. 140 "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement supercedes and replaces the guidance in Statement 125. It revises
the standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, although it
carries over most of Statement 125's provisions without reconsideration. The
Statement is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001 and for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. This Statement is to be applied prospectively with certain
exceptions. Other than those exceptions, earlier or retroactive application of
its accounting provisions is not permitted. There was no impact of the adoption
of this statement on Patriot's earnings, financial condition, or equity.

        In June 2001, the FASB issued Statement No. 141, "Business
Combinations." The Statement addresses financial accounting and reporting for
business combinations and supersedes APB Opinion No. 16, Business Combinations,
and FASB Statement No. 38, Accounting for Pre-acquisition Contingencies of
Purchased Enterprises. All business combinations in the scope of the Statement
are to be accounted for using the purchase method, thereby eliminating the use
of the pooling of interest method. The provisions of the Statement apply to all
business combinations initiated after June 30, 2001. The Statement also applies
to all business combinations accounted for using the purchase method for which
the date of acquisition is July 1, 2001, or later. Historically, Patriot has not
used the pooling of interest method, therefore there was no impact on earnings,
financial condition, or equity upon adoption of Statement No. 141.

        In June 2001, the FASB issued Statement No. 142, "Goodwill and Other
Intangible Assets." The Statement addresses financial accounting and reporting
for acquired goodwill and other intangible assets and supersedes APB Opinion No.
17, Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their
acquisition. The Statement also addresses how goodwill and other intangible
assets should be accounted for after they have been initially recognized in the
financial statements, including requirements for periodic impairment evaluation.
The provisions of the Statement are required to be applied starting with fiscal
years beginning after December 15, 2001, except that goodwill and intangible
assets acquired after June 30, 2001, will be subject immediately to the
non-amortization and amortization provisions of the Statement. The Statement is
required to be applied at the beginning of an entity's fiscal year and to be
applied to all goodwill and other intangible assets recognized in its financial
statements at that date. Upon adoption of Statement No. 142 in January 2002, the
anticipated effect on Patriot's earnings as a result of the elimination of
goodwill amortization expense is $800,000 after-tax for fiscal year 2002. As
required by SFAS No. 141, Patriot will perform an impairment test within six
months of adoption. At this time, Patriot does not anticipate any impairment.

        In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations." This Statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to legal
obligations associated with the retirement of long-lived assets that result from
the acquisition, construction, development and (or) the normal operation of a
long-lived asset, except for certain obligations of lessees. As used in this
Statement, a legal obligation is an obligation that a party is required to
settle as a result of an existing or enacted law, statute, ordinance, or written
or oral contract or by legal construction of a contract under the doctrine of
promissory estoppel. This Statement requires that the fair value of a liability
for an asset retirement obligation be recognized in


                                       43
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, -(CONTINUED)

the period in which it is incurred if a reasonable estimate of fair value can be
made. The associated asset retirement costs are capitalized as part of the
carrying amount of the long-lived asset. It is effective for financial
statements issued for fiscal years beginning after June 15, 2002. Earlier
application is encouraged. The Bank does not expect the adoption of the
Statement to have an impact on it's earnings, financial condition, or equity.

In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This Statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." However, the Statement retains the
fundamental provisions of Statement 121 for (a) recognition and measurement of
the impairment of long-lived assets to be held and used and (b) measurement of
long-lived assets to be disposed of by sale. This Statement supersedes the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business. However, this
Statement retains the requirement of Opinion 30 to report discontinued
operations separately from continuing operations and extends that reporting to a
component of an entity that either has been disposed of (by sale, by
abandonment, or in distribution to owners) or is classified as held for sale.
The provisions of this Statement are effective for financial statements issued
for fiscal years beginning after December 15, 2001, and interim periods within
those fiscal years, with earlier application encouraged. The provisions of this
Statement generally are to be applied prospectively. The Bank does not expect
the adoption of the Statement to have an impact on it's earnings, financial
condition, or equity.

b. CASH AND CASH EQUIVALENTS

        Cash and cash equivalents are defined as cash on hand, cash items in
process of collection, amounts due from banks, and interest earning deposits in
other financial institutions. Interest-earning deposits consist of deposit
accounts with the Federal Home Loan Bank (FHLB) of Pittsburgh and deposits with
other financial institutions generally having maturities of three months or
less.

c. SECURITIES

        Securities for which Patriot has the intent and ability to hold to
maturity are classified as held to maturity and reported at amortized cost.
Securities expected to be held for an indefinite period of time are classified
as available for sale and are carried at fair value, with unrealized gains and
losses reported as a separate component of stockholders' equity, net of
estimated income taxes. Securities that are bought and held principally for the
purpose of selling are classified as trading and reported at fair value, with
unrealized gains and losses included in earnings. Patriot has no securities held
for trading. Gains or losses on the sales of securities are recognized at trade
date utilizing the specific identification method.

d. LOANS HELD FOR SALE

        Loans held for sale consist of residential mortgage loans originated by
Patriot. They are recorded at the lower of cost or estimated fair value on an
aggregate basis.



                                       44
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, -(CONTINUED)


e. LOANS AND LEASES AND ALLOWANCE FOR CREDIT LOSSES

        Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are stated at unpaid principal
balances and net of deferred loan origination fees and discounts. Interest is
accrued and credited to operations based upon the principal amount of loans
outstanding. Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for estimated prepayments based on Patriot's historical prepayment
experience.

        Direct finance leases have terms ranging from three to five years. Under
direct finance lease accounting, the balance sheet includes the gross minimum
lease payments receivable, unguaranteed estimated residual values of the leased
equipment, and capitalized indirect costs, reduced by unearned lease income.

        The lease residual values represent the expected proceeds from the sale
of leased equipment at the end of the initial term of the lease and are
determined on the basis of analyses prepared by Patriot based upon professional
appraisals, historical experience and industry data. Management reviews the
estimated residual values on a periodic basis, and impairments in value, if any,
are recognized as an immediate charge to income.

        An allowance for credit losses is maintained at a level that management
considers adequate to provide for losses based upon an evaluation of known and
inherent risks in the loan and lease portfolios. Management's periodic
evaluation of the adequacy of the allowance for credit losses is based upon
evaluation of individual loans and leases, the overall risk characteristics of
the various portfolio segments, regression analyses using past loss experience,
current and projected financial status and creditworthiness of its borrowers,
the adequacy of collateral, the level and nature of non-performing loans,
current economic conditions, the results of the most recent regulatory
examination and other relevant factors. This evaluation is inherently
subjective. While management uses the best information available to make such
evaluations, future adjustments to the allowance may be necessary if conditions
differ substantially from the assumptions used in making the evaluations. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for credit losses. Such agencies may
require Patriot to recognize additions to the allowance for credit losses based
on their judgments of information which is available to them at the time of
their examinations.

        Impaired loans, as defined by Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," are
measured based on the present value of expected future cash flows discounted at
a loan's effective interest rate, or at a loan's observable market price or fair
value of the collateral if the loan is collateral dependent. A loan is
considered to be impaired if upon management's assessment of the relevant facts
and circumstances, it is probable that Patriot will be unable to collect all
proceeds due according to the contractual terms of the loan agreement.

        Uncollectible interest on loans and leases that are contractually past
due ninety days or greater is charged off. Loans are returned to an accrual
status when payments become current and other factors indicating doubtful
collectibility cease to exist.



                                       45
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, -(CONTINUED)


f. PREMISES AND EQUIPMENT

        Land is carried at cost. Buildings, leasehold improvements and
furniture, fixtures and equipment are carried at cost less accumulated
depreciation. Depreciation is provided for by the straight-line method over the
estimated useful lives of the assets.

g. INCOME TAXES

        Deferred income taxes are determined based on the differences between
the financial statement and tax basis of assets and liabilities as measured by
the enacted tax rates which will be in effect when the differences reverse.
Deferred tax expense is the result of changes in deferred tax assets and
liabilities.

h. EARNINGS PER SHARE

        Basic earnings per share excludes dilution and is computed by dividing
income available to common shares by the weighted average common shares
outstanding during the period. Diluted earnings per share takes into account the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised and converted into common stock. Prior periods'
earnings per share calculations have been restated to reflect stock splits and
stock dividends.

i. GOODWILL

Goodwill represents the excess of the purchase price over the estimated fair
value of identifiable net assets acquired through purchase acquisitions and is
included in other assets.

j. RECLASSIFICATIONS

        Certain prior period amounts have been reclassified to conform with the
current year's presentation. These reclassifications had no effect on net
income.



                                       46
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 2 - BUSINESS COMBINATIONS

On January 22, 1999, Patriot completed the acquisition of First Lehigh
Corporation ("First Lehigh"), a commercial banking company with $104,478,000 in
total assets and $93,905,000 in total deposits. Patriot issued 1,640,000 shares
of common stock for all the outstanding common and preferred stock of First
Lehigh. The transaction had a total value of $21,047,000. The acquisition was
accounted for as a purchase, and accordingly, the results of operations of First
Lehigh are included in Patriot's consolidated statement of income from the date
of acquisition. At December 31, 2001, Goodwill and core deposit intangibles
arising from the transaction totaled $6,909,281 and $3,362,367, respectively.
During 2001, FASB issued SFAS No. 142. In accordance with SFAS No. 142, Patriot
will continue to amortize the core deposit intangible, while goodwill will no
longer be amortized but be subject to periodic impairment testing instead. The
core deposit intangible is being amortized over 13 years.


NOTE 3 - RESTRICTIONS ON CASH AND AMOUNTS DUE FROM DEPOSITORY INSTITUTIONS

        Patriot is required to maintain certain average reserve balances as
established by the Federal Reserve Board. The amounts of those reserve balances
for the reserve computation periods which included December 31, 2001 and 2000,
were $3,061,000 and $2,334,000, respectively.


                                       47
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 4 - SECURITIES

The amortized cost and estimated fair value of investment and mortgage-backed
securities are as follows:

<TABLE>
<CAPTION>
                                                                           2001
                                                                           ----
                                                                 GROSS          GROSS
                                                AMORTIZED      UNREALIZED     UNREALIZED    ESTIMATED
                                                  COST           GAINS           LOSS       FAIR VALUE
                                                  ----           -----           ----       ----------
                                                                   (IN THOUSANDS)
<S>                                             <C>            <C>            <C>            <C>
AVAILABLE FOR SALE:
     Investment securities:
         U.S. Treasury and government
            agency securities                   $ 31,475       $      2       $  1,640       $ 29,837
         Corporate debt securities                16,582       $     27       $  1,656       $ 14,953
         FHLMC Preferred Stock                    42,762          2,184             53         44,893
         FHLB Stock                               19,359             --             --         19,359
         Equity securities                         5,845             31            433          5,443
     Mortgage-backed securities:
        FHLMC                                      5,194             13             10          5,197
        FNMA                                      45,466            124            144         45,446
        GNMA                                         120             12             --            132
     Collateralized mortgage obligations:
        FHLMC                                     44,879            566            193         45,252
        FNMA                                      33,632            582             70         34,144
        Other                                      2,938             18             --          2,956
                                                --------       --------       --------       --------
Total securities available for sale             $248,252       $  3,559       $  4,199       $247,612
                                                ========       ========       ========       ========

HELD TO MATURITY:
    Investment securities:
       U.S. Treasury and government
         agency securities:                     $ 14,388       $    342       $    226       $ 14,504
       Corporate debt securities                   1,000              1             --          1,001
    Mortgage-backed securities:
        FHLMC                                      1,661             27             36          1,652
        FNMA                                       1,680             80             51          1,709
        GNMA                                       2,245             57             65          2,237
Collateralized mortgage
    obligations:
        FHLMC                                     16,187            264            834         15,617
        FNMA                                       6,476             53            171          6,358
                                                --------       --------       --------       --------
Total securities held to maturity               $ 43,637       $    824       $  1,383       $ 43,078
                                                ========       ========       ========       ========
</TABLE>


                                       48
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 4 - SECURITIES, -(CONTINUED)

<TABLE>
<CAPTION>
                                                                       2000
                                                                       ----
                                                             GROSS           GROSS
                                             AMORTIZED     UNREALIZED     UNREALIZED      ESTIMATED
                                               COST          GAINS           LOSS         FAIR VALUE
                                               ----          -----           ----         ----------
                                                                  (IN THOUSANDS)
<S>                                          <C>            <C>           <C>            <C>
AVAILABLE FOR SALE:
     Investment securities:
         Corporate debt securities           $ 17,084       $     15       $  1,992       $ 15,107
         FHLMC Preferred Stock                 44,973          1,915             --         46,888
         FHLB Stock                            16,609             --             --         16,609
        Equity securities                       6,295              9            639          5,665
     Mortgage-backed securities:
         FHLMC                                    613              7             --            620
                                             --------       --------       --------       --------
Total securities available for sale          $ 85,574       $  1,946       $  2,631       $ 84,889
                                             ========       ========       ========       ========

HELD TO MATURITY:
    Investment securities:
       U.S. Treasury and government
          agency securities:                 $ 76,545       $  4,144       $  7,131       $ 73,558
       Corporate debt securities                1,001             --              1          1,000
    Mortgage-backed securities:
        FHLMC                                   3,446             27             47          3,426
        FNMA                                   48,462          2,605          1,183         49,884
        GNMA                                    3,573             38             83          3,528
Collateralized mortgage
    obligations:
        FHLMC                                  90,920          1,240          2,238         89,922
        FNMA                                   70,043            922          1,198         69,767
        Other                                   6,196             14             35          6,175
        CMBS                                    2,303            122             --          2,425
                                             --------       --------       --------       --------
     Total securities held to maturity       $302,489       $  9,112       $ 11,916       $299,685
                                             ========       ========       ========       ========
</TABLE>


                                       49
<PAGE>



                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 4 - SECURITIES, -(CONTINUED)

        The amortized cost and estimated fair value of investment and
mortgage-backed securities at December 31, 2001, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties:

<TABLE>
<CAPTION>
                                                 HELD TO MATURITY             AVAILABLE FOR SALE
                                             AMORTIZED        FAIR          AMORTIZED       FAIR
                                               COST           VALUE           COST          VALUE
                                               ----           -----           ----          -----
                                                                 (IN THOUSANDS)
<S>                                          <C>            <C>            <C>            <C>
SECURITIES
Due in one year or less ..............       $  3,627       $  3,631       $  5,697       $  5,750
Due after one year through five years          10,310         10,459         20,206         20,201
Due after five years through ten years          6,831          6,717         30,366         30,445
Due after ten years...................         22,869         22,271        124,017        121,521
FHLMC Preferred Stocks ...............             --             --         42,762         44,893
FHLB Stock ...........................             --             --         19,359         19,359
Equity securities.....................             --             --          5,845          5,443
                                             --------       --------       --------       --------
     Total  securities ...............       $ 43,637       $ 43,078       $248,252       $247,612
                                             ========       ========       ========       ========
</TABLE>

        For purposes of the maturity table, mortgage-backed securities, which
are not due at a single maturity date, have been allocated over maturity
groupings based on the contractual maturities. The mortgage-backed securities
may mature earlier than their contractual maturities because of principal
prepayments.

        Proceeds from sales of investment and mortgage-backed securities and the
realized gross gains and losses exclusive of the impact of SFAS No. 133 from
those sales are as follows:

<TABLE>
<CAPTION>
                                           AVAILABLE FOR SALE
                                           ------------------

                                         YEAR ENDED DECEMBER 31,
                               ----------------------------------------

                                 2001            2000            1999
                                 ----            ----            ----
                                            (IN THOUSANDS)
<S>                           <C>             <C>             <C>
Proceeds from sales            $ 50,920        $  4,625        $ 27,478
                               ========        ========        ========

Gross realized gains                653              --           1,265
Gross realized losses               (95)             (1)           (758)
                               --------        --------        --------
Net realized gain (loss)       $    558        $     (1)       $    507
                               ========        ========        ========
</TABLE>

Patriot adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as of January 1, 2001. The cumulative effect of the adoption was a
$204,000 decrease to consolidated income, net of $105,000 of tax benefit.

Securities having an aggregate amortized cost of $ 9,510,058, $9,308,807, and
$2,839,601 were pledged to secure public deposits at December 31, 2001, 2000 and
1999, respectively.


                                       50
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 5 - LOANS AND LEASES RECEIVABLE

Loans and leases receivable are summarized as follows:

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                            ------------
                                                                     2001                   2000
                                                                                            ----
                                                                            (IN THOUSANDS)
<S>                                                             <C>                   <C>
Commercial Portfolio:
     Commercial loans                                            $ 283,848              $ 252,837
     Commercial leases                                              77,838                 67,094
Consumer Portfolio:
     Home equity                                                    66,834                 64,733
     Other consumer loans                                            8,614                  8,553
Mortgage Portfolio:
     Residential mortgages                                         206,467                253,213
     Construction                                                    4,605                 10,779
                                                                     -----                 ------
Total loans and leases, gross                                      648,206                657,209
     Deferred loan origination costs (fees)                            933                   (730)
     Allowance for credit losses                                    (6,199)                (5,839)
                                                                   -------                -------
Total loans and leases, net                                      $ 642,940              $ 650,640
                                                                 =========              =========
</TABLE>

Patriot services a $35,763,000 portfolio of sold mortgage loans with
corresponding originated mortgage servicing rights totaling $581,000. During
2001, Patriot amortized $66,000 of originated mortgage servicing rights.
Patriot's loan portfolio is principally concentrated in the eastern
Pennsylvania.

Activity in the allowance for credit losses is summarized as follows:

<TABLE>
<CAPTION>
                                                                    2001                2000               1999
                                                                    ----                ----               ----
                                                                                  (IN THOUSANDS)
<S>                                                             <C>                 <C>                <C>
Balance at beginning of year                                      $5,839              $6,082             $4,087

Provision for credit losses                                        2,000               1,125              1,200
Acquired allowance                                                    --                  --              1,756
Loans charged off                                                 (1,872)             (1,481)            (1,065)
Recoveries                                                           232                 113                104
                                                                     ---                 ---             ------
Balance at end of year                                            $6,199              $5,839             $6,082
                                                                  ======              ======             ======
</TABLE>

Impaired loans are measured based on the present value of expected future cash
flows discounted at a loan's effective interest rate or at a loan's observable
market price or fair value of the collateral if the loan is collateral
dependent. A loans is considered to be impaired if upon management's assessment
of the relevant facts and circumstances, it is probable that Patriot will be
unable to collect all proceeds due according to the contractual terms of the
loan agreement. Patriot had impaired loans at December 31, 2001, of $127,000
compared to $121,000 at December 31, 2000. The average recorded investment in
impaired loans was $156,000, $127,000, and $159,000 during 2001, 2000, and 1999,
respectively. The allowance for loan losses on impaired loans was $23,000 at
December 31, 2001, compared to $22,000 at December 31, 2000. Patriot recognizes
interest income on a cash basis method on impaired loans. Total interest income
recognized on impaired loans totaled $11,000, $2,000, and $12,000 for the years
ended December 31, 2001, 2000 and 1999, respectively. All of Patriot's impaired
loans were included as non-performing loans at December 31, 2001, 2000 and 1999
as well.



                                       51
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 5 - LOANS AND LEASES RECEIVABLE - (CONTINUED)

Non-performing loans, consisting of all loans 90 days past due and certain other
loans for which the accrual of interest has been discontinued, were $4,986,000
and $3,888,000 at December 31, 2001 and 2000, respectively. Interest income that
would have been recorded under the original terms of such loans and the interest
income actually recognized are summarized as follows:

<TABLE>
<CAPTION>
                                                                        2001             2000            1999
                                                                        ----             ----            ----
                                                                                    (IN THOUSANDS)
<S>                                                                  <C>              <C>             <C>
Interest income that would have been recorded                           $411            $390             $155
Interest income recognized                                              (204)           (244)             (95)
                                                                        ----           -----             ----

Interest income foregone                                                $207           $ 146              $60
                                                                        ====           =====             ====
</TABLE>

NOTE 6 - PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:


<TABLE>
<CAPTION>
                                                          ESTIMATED
                                                         USEFUL LIVES           2001          2000
                                                         ------------           -----         -----
                                                                                 (IN THOUSANDS)
<S>                                                     <C>                <C>            <C>
       Land ...........................................      ----               $   640       $   640
       Buildings ......................................      30-40                2,788         2,709
       Furniture, fixtures and equipment ..............       3-7                 8,910         8,689
       Leasehold improvements .........................       15                  1,278           907
                                                                           -------------    ----------
                                                                                 13,616        12,945
       Less accumulated depreciation ..................                          (6,858)       (5,371)
                                                                           -------------    ----------
                                                                                 $6,758        $7,574
                                                                           =============    ==========
</TABLE>



                                       52
<PAGE>



                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 7 - DEPOSITS

Deposits and their average rates are summarized as follows:


<TABLE>
<CAPTION>
                                                                               2001                               2000
                                                                   -----------------------------      -----------------------------
                                                                                      AVERAGE                            AVERAGE
                                                                     BALANCE           RATE             BALANCE           RATE
                                                                   -------------    ------------      -------------    ------------
                                                                                             (IN THOUSANDS)
<S>                                                                <C>                 <C>            <C>              <C>
Transaction deposits..........................................      $   43,294             0.43 %     $    41,309             .38%
Money market deposits.........................................         135,214             2.34           110,092            4.91
Savings deposits..............................................          45,534             1.99            29,051            2.28
Non-interest-bearings demand deposits ........................          25,892             0.00            21,163            0.00
                                                                   -------------    ------------      -------------    ------------
Total transaction, money market, savings and demand
     deposits.................................................         249,934             1.71           201,615            3.09
Certificates of deposit.......................................         283,929             5.23           448,343            6.49
                                                                   -------------    ------------      -------------    ------------
           Total..............................................      $  533,863             3.59 %     $   649,958            5.44%
                                                                   =============    ============      =============    ============

</TABLE>

        The aggregate amount of certificates of deposit with minimum
denominations of $100,000 or more totaled approximately $78,485,000 and
$233,888,000 at December 31, 2001 and 2000, respectively. At December 31, 2001,
Patriot had brokered certificates of deposits in the amount of $47,080,000, as
compared to $205,258,000 at December 31, 2000.

At December 31, 2001, scheduled maturities of certificates of deposit were as
follows (in thousands):

<TABLE>
       <S>                                                                        <C>
           2002 ................................................................  $      218,189

           2003 ................................................................          47,347

           2004 ................................................................           8,493

           2005 ................................................................           5,712

           2006 ................................................................           1,937

           Thereafter ..........................................................           2,251
                                                                                  --------------
                                                                                  $      283,929
                                                                                  ==============
</TABLE>


                                       53
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 8 - FHLB ADVANCES

a.  SHORT TERM

    Short-term advances from the FHLB have maturities of less than one year.
These advances are collateralized by certain loan portfolios, mortgage-backed
securities, and other investment securities. Short-term borrowings are
summarized as follows:

<TABLE>
<CAPTION>
                                                                                      2001              2000              1999
                                                                               -----------------  ----------------  ---------------
                                                                                                   (IN THOUSANDS)
<S>                                                                               <C>              <C>               <C>
           Balance at year-end                                                     $  70,000        $       --          $  172,500
           Maximum amount outstanding at any month-end during the period           $  70,000        $  206,000          $  172,500
           Average amount outstanding during each period                           $  33,648        $  144,758          $   93,825
           Weighted average interest rate on short-term borrowings                      5.81%             5.91%               5.66%
</TABLE>

b.  LONG TERM

        At December 31, 2001 and 2000, long-term advances from the FHLB totaled
$317,179,000 and $317,186,000, respectively. These advances are collateralized
by certain loan portfolios, mortgage-backed securities, and other investment
securities.

At December 31, 2001, the outstanding long-term borrowings mature as follows (in
thousands):

<TABLE>
                        <S>                                   <C>
                               2003                              90,000
                               2004                                  --
                               2005                              37,000
                               2006                              35,000
                            Thereafter                          155,179
                                                                -------
                                                                317,179
                                                                =======
</TABLE>


                                       54
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 9 - SECURITIES SOLD UNDER SHORT-TERM REPURCHASE AGREEMENTS

        Patriot enters into sales of securities under agreements to repurchase.
These transactions are reflected as a liability on the accompanying Consolidated
Balance Sheets. At December 31, 2000, all of the agreements were to repurchase
identical securities.

        Short-term repurchase agreements generally have maturities of less than
one year. These repurchase agreements are collateralized by certain
mortgage-backed, agency and corporate securities. Short-term repurchase
agreements are summarized as follows:

<TABLE>
<CAPTION>
                                                                                    2001               2000               1999
                                                                                -------------      -------------      -------------
                                                                                                  (IN THOUSANDS)
<S>                                                                                <C>              <C>             <C>
     Balance at year-end                                                             $    --         $   80,651       $  137,103
     Maximum amount outstanding at any month-end during the period                   $    --         $  150,639       $  170,124
     Average amount outstanding during each period                                   $ 6,051         $  119,523       $  151,092
     Weighted average interest rate on short-term borrowings                           6.62%              6.39%            5.31%

     Investment and mortgage-backed securities underlying the agreements at
     year-end:
         Carrying value                                                              $    --         $  125,763       $  146,646
         Estimated fair value                                                        $    --         $  120,438       $  140,561
</TABLE>

NOTE  10 - TRUST PREFERRED SECURITIES

        On May 29, 1997, Patriot issued $19,000,000 of 10.30% junior
subordinated debentures to Patriot Capital Trust I, a Delaware Business Trust,
in which Patriot owns all of the common equity. The Trust issued $19,000,000 of
preferred securities to investors, secured by the junior subordinated debentures
and the guarantee of Patriot. Although the junior subordinated debentures will
be treated as debt of Patriot, they currently qualify for Tier I capital
treatment, subject to certain limitations, under risk-based capital guidelines
of the Federal Reserve. The Trust Preferred Securities are callable by the
Company on or after July 1, 2007, or earlier in the event the deduction of
related interest for federal income taxes is prohibited, treatment as Tier I
capital is no longer permitted or certain other contingencies arise. The Trust
Preferred Securities must be redeemed upon maturity of the debentures in 2027.
During 2001, Patriot Bank repurchased $1,000,000 of these trust preferred
securities in the open market.




                                       55
<PAGE>


                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 11 - INCOME TAXES

        Applicable income taxes in the consolidated statements of income are as
follows:

<TABLE>
<CAPTION>
                                                               2001                2000            1999
                                                               ----                ----            ----
                                                                              (IN THOUSANDS)
<S>                                                          <C>                 <C>              <C>
Current
Federal                                                      $     938           $     (76)       $   1,459
State                                                              166                  15              108
                                                              --------           ---------        ---------

Total current                                                    1,104                 (61)           1,567
                                                              --------           ---------        ---------

Deferred
Federal                                                          1,394                (184)          (1,336)
State                                                              (36)                 63              (54)
                                                              --------           ---------        ---------

Total deferred                                                   1,358                (121)          (1,390)
                                                              --------           ---------        ---------

Applicable income taxes                                      $   2,462           $    (182)       $     177
                                                              ========           =========        =========

Effective tax rate                                               28.09%              (9.96)%           7.40%
                                                              ========           =========        =========
</TABLE>

Patriot adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as of January 1, 2001. The cumulative effect of the adoption was a
$204,000 decrease to consolidated income, net of $105,000 of tax benefit.

        The income tax provision reconciled to taxes computed at the statutory
federal rate is as follows:

<TABLE>
<CAPTION>
                                                        2001         2000         1999
                                                     -----------------------------------
<S>                                                  <C>          <C>          <C>
Federal tax expense at statutory rate                   34.00%       34.00%       34.00%
Adjustment resulting from:
State tax, net of federal tax benefit                    0.85         2.77         0.70
Bank owned life insurance                               (3.36)      (15.93)       (9.70)
Tax-exempt interest and dividend income                 (8.71)      (50.97)      (32.10)
ESOP expense                                             0.37         0.82         1.40
Goodwill                                                 4.10        18.43        11.40
Other                                                    0.84         0.92         1.70
                                                     --------       ------      -------

Income taxes                                            28.09%       (9.96)%       7.40%
                                                     ========       ======      =======
</TABLE>



                                       56
<PAGE>



                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 11 - INCOME TAXES -(CONTINUED)

<TABLE>
<CAPTION>
                                                                 2001           2000
                                                                 ----           ----
                                                                   (in thousands)
<S>                                                         <C>             <C>
Deferred tax assets:
Allowance for credit losses                                    $2,118            $1,731
Uncollectible interest                                             87                51
MRP expense                                                        --                70
Deferred compensation                                             266               485
Reserves on investment                                             --             1,725
Acquired NOL's                                                    695             1,031
Reserves other                                                      2                 2
Intangibles amortization                                          418               337
Alternative minimum tax credits                                   904               348
Unrealized loss on securities
available for sale                                                 --             2,537
                                                                   --             -----

Total deferred tax assets                                      $4,490            $8,317
                                                               ======            ======

Deferred tax liabilities:
Depreciation                                                   $  433            $  458
Discount accretion                                                258               212
Originated mortgage servicing rights                              197               220
Bad debt recapture                                                166               291
Purchase accounting                                               134               177
Deferred loan costs                                               916               678
Unrealized gain on securities
available for sale                                                 92                --
                                                               ------            ------

Total deferred tax liabilities                                  2,196             2,036
                                                               ------            ------

Net deferred tax asset (liability)                             $2,294            $6,281
                                                               ======            ======
</TABLE>

        Based on management's evaluation of the likelihood of realization, no
valuation allowance has been provided against deferred tax benefits.

        For federal income tax purposes, Patriot has approximately $2,045,000 of
net operating loss carryforwards resulting in a $695,000 deferred tax asset as
of December 31, 2001. The net operating loss will begin to expire after the year
ended December 31, 2010 if not utilized.

        The Small Business Job Protection Act of 1996, enacted on August
20,1996, provides for the repeal of the tax bad debt deduction computed under
the percentage of taxable income method. Upon repeal, the Bank is required to
recapture into income, over a six-year period, the portion of its tax bad debt
reserves that exceed its base year reserves (i.e., tax reserves for tax years
beginning before 1988). The base year tax reserves, which may be subject to
recapture if the Bank ceases to qualify as a bank for federal income tax
purposes, are restricted with respect to certain distributions. The Bank's total
tax bad debt reserves at December 31, 2001, are approximately $4,060,000, of
which $4,046,000 represents the base year amount and $14,000 is subject to
recapture.



                                       57
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 12 - EARNINGS PER SHARE

        Patriot's calculation of earnings per share is as follows (in thousands
except per share data):

<TABLE>
<CAPTION>
                                                                       FOR YEAR ENDED DECEMBER 31, 2001
                                                        ----------------------------------------------------------
                                                              INCOME              SHARES              PER-SHARE
                                                           (NUMERATOR)         (DENOMINATOR)           AMOUNT
                                                           -----------         -------------           ------
<S>                                                     <C>                 <C>                  <C>
BASIC EPS
Net Income available to common stockholders........     $       6,099                  5,892     $           1.04
EFFECT OF DILUTIVE SECURITIES
Dilutive Options...................................              ----                    106                 (.02)
                                                        -------------       ----------------     ----------------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions..............     $       6,099                  5,998     $           1.02
                                                        =============       ================     ================
</TABLE>

<TABLE>
<CAPTION>
                                                                      FOR YEAR ENDED DECEMBER 31, 2000
                                                        ----------------------------------------------------------
                                                             INCOME               SHARES              PER-SHARE
                                                           (NUMERATOR)         (DENOMINATOR)           AMOUNT
                                                           -----------         -------------           ------
<S>                                                    <C>                   <C>                 <C>
BASIC EPS
Net Income available to common stockholders........     $       2,009                  5,814     $           0.35
EFFECT OF DILUTIVE SECURITIES
Dilutive Options...................................              ----                     86                 (.01)
                                                        -------------       ----------------     ----------------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions..............     $       2,009                  5,900     $           0.34
                                                        =============       ================     ================
</TABLE>

<TABLE>
<CAPTION>
                                                                      FOR YEAR ENDED DECEMBER 31, 1999
                                                        ----------------------------------------------------------
                                                              INCOME              SHARES              PER-SHARE
                                                           (NUMERATOR)         (DENOMINATOR)           AMOUNT
                                                        -------------       ----------------     ----------------
<S>                                                     <C>                  <C>                 <C>
BASIC EPS
Net Income available to common stockholders........     $       2,200                  5,731     $           0.38
EFFECT OF DILUTIVE SECURITIES
Dilutive Options...................................              ----                    186                 (.01)
                                                        -------------       ----------------     ----------------
DILUTED EPS
Net income available to common
Stockholders plus assumed conversions..............     $       2,200                  5,917     $           0.37
                                                         ============       ================      ===============
</TABLE>

        ANTI-DILUTIVE OPTIONS. Patriot had 40,000, 40,000, and 39,000
anti-dilutive options at December 31, 2001, 2000 and 1999 respectively.



                                       58
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 13 - SEGMENT REPORTING

        The Company has two reportable segments: Patriot Bank and Patriot
Commercial Leasing Corporation. Patriot Bank operates a community banking
network with seventeen community banking offices providing deposits and loan
services to customers. Patriot Commercial Leasing Corporation is a small ticket
commercial leasing company.

        During 1999, the company launched an internet initiative that
represented a third reporting segment. In the fourth quarter of 1999 Patriot's
ownership of this initiative was substantially reduced, eliminating this
initiative as a reporting segment for the Company.

The following table highlights income statement and balance sheet information
for each of the segments at or for the year ended December 31, 2001, 2000 and
1999 (in thousands).

<TABLE>
<CAPTION>
                                     AT OR FOR THE YEAR-ENDED DECEMBER 31, 2001
                                     ------------------------------------------
                                                 PATRIOT COMMERCIAL
                                                 ------------------
                                   PATRIOT BANK       LEASING            TOTAL
                                   ------------      ----------       ----------
<S>                                <C>               <C>              <C>
Net interest income                 $   21,260       $    2,381       $   23,641
Other income                             6,535            1,357            7,892
Total net income                         5,341              758            6,099
Total assets                           931,164           78,906        1,010,070
Total loans and leases, gross          570,368           77,838          648,206
Intersegment interest expense               --            4,416            4,416
Intersegment other                          --              240              240
</TABLE>

<TABLE>
<CAPTION>
                                     AT OR FOR THE YEAR-ENDED DECEMBER 31, 2000
                                     ------------------------------------------
                                                 PATRIOT COMMERCIAL
                                                 ------------------
                                   PATRIOT BANK       LEASING            TOTAL
                                   ------------      ----------       ----------
<S>                                <C>               <C>              <C>
Net interest income                 $   20,562       $    2,110       $   22,672
Other income                             5,956            1,168            7,124
Total net income                         1,457              552            2,009
Total assets                         1,056,940           67,965        1,124,905
Total loans and leases, gross          590,115           67,094          657,209
Intersegment interest expense               --            4,009            4,009
Intersegment other                          --              240              240
</TABLE>

<TABLE>
<CAPTION>
                                          AT OR FOR THE YEAR-ENDED DECEMBER 31, 1999
                                          ------------------------------------------
                                                 PATRIOT COMMERCIAL    INTERNET
                                   PATRIOT BANK        LEASING        INITIATIVE          TOTAL
                                   ------------      ----------       ----------        ----------
<S>                                <C>               <C>              <C>               <C>
Net interest income                 $   22,291       $    1,743       $       --        $   24,034
Other income                             5,016              929               --             5,945
Total net income                         7,100              167           (5,067)            2,200
Total assets                         1,069,993           59,450               --         1,129,443
Total loans and leases, gross          572,388           57,808               --           630,196
Intersegment interest expense               --            2,971               --             2,971
Intersegment other                          --              240               --               240
</TABLE>



                                       59
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001


NOTE 14 - EMPLOYEE BENEFIT PLANS

a. 401(k) PLAN

        Patriot maintains a 401(k) plan covering all of its employees who have
attained age 21 and have completed at least one year of service. Under the plan,
Patriot contributes 100% of an employee's contribution up to 6% of base salary.
Patriot's contributions were $273,000, $363,000, and $277,000 for the years
ended December 31, 2001, 2000, and 1999 respectively.


b. EMPLOYEE STOCK OWNERSHIP PLAN

        In 1995, Patriot established an internally leveraged Employee Stock
Ownership Plan (ESOP) for eligible employees who have completed one year of
service with Patriot or its subsidiaries. In December 1995, the ESOP borrowed
$3,015,000 from Patriot to purchase 543,000 (as adjusted for subsequent stock
dividends and stock split) newly issued shares of common stock. Patriot makes
contributions to the ESOP equal to the ESOP's debt service less any dividends
received by the ESOP. Any dividends received by the ESOP are used to pay debt
service. The ESOP shares are pledged as collateral for its debt. As the debt is
repaid, shares are released from collateral and allocated to qualifying
employees based on the proportion of debt service paid in the year. Accordingly,
the debt of the ESOP is recorded as debt and the shares pledged as collateral
are reported as unearned ESOP shares in the consolidated Balance Sheets. As
shares are released from collateral, Patriot reports compensation expense equal
to the current market price of the shares, and the allocated shares are included
in outstanding shares for earnings per share computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are recorded as a reduction of debt and
accrued interest. ESOP compensation expense was $238,000, $216,000, and $262,000
in 2001, 2000, and 1999, respectively. The ESOP shares as of December 31, 2001,
were as follows:

<TABLE>
        <S>                                   <C>
        Allocated shares                         209,000
        Unreleased shares                        334,000
                                              ----------

        Total ESOP shares                        543,000
                                              ==========

        Fair value of unreleased shares       $3,557,100
                                              ==========
</TABLE>


                                       60
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 14 - EMPLOYEE BENEFIT PLANS, -(CONTINUED)

c. STOCK-BASED COMPENSATION

        Patriot maintains a Management Recognition Plan (MRP). The MRP provides
that up to 271,000 shares of common stock may be granted, at the discretion of
the Board, to key directors and officers at no cost to the individuals. Patriot
granted 0, 2,000, and 3,000 shares during 2001, 2000 and 1999, respectively in
the form of restricted stock payable over five years from the date of grant. The
recipients of the restricted stock are entitled to all voting and other
stockholder rights, except that the shares, while restricted, may not be sold,
pledged or otherwise disposed of and are required to be held in escrow. In the
event the recipient terminates association with Patriot for reasons other than
death, disability or change in control, the recipient forfeits all rights to the
allocated shares under restriction which are canceled and revert to Patriot for
reissuance under the plan. Shares acquired by the MRP were newly issued shares
and were recorded at the date of award based on the market value of shares.
Shares acquired by the MRP, which are shown as a separate component of
stockholders' equity, are being amortized to expense over the five-year vesting
period. As shares are vested during this five-year period, Patriot records
compensation expense equal to the shares being amortized. For the years ended
December 31, 2001, 2000, and 1999, $173,000, $377,000, and $359,000 were
amortized to expense, respectively. At December 31, 2001, 18,000 shares were
reserved for future grants under the plan.

        Patriot maintains a stock option plan. Patriot's employee stock option
plan is accounted for under the intrinsic value method of APB Opinion No. 25.
Accordingly, Patriot is required to make pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting defined in
SFAS No. 123 "Accounting for Stock-Based Compensation," had been applied. The
plan permits the grant of options to employees and directors for up to 700,000
shares of common stock. The options have a term of 10 years and vest over a
five-year period. The exercise price of each option equals the market price of
Patriot's stock on the date of grant. Accordingly, no compensation cost has been
recognized for the plan. Had compensation cost for the plan been determined
based on the fair value of the options at the grant dates consistent with the
method of SFAS No. 123, Patriot's 2001, 2000, and 1999 net income and earnings
per share would have been reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                 2001                                    2000
                                                 ----                                    ----
                                    AS REPORTED          PRO-FORMA          AS REPORTED          PRO FORMA
                                   -------------       -------------       -------------       -------------
<S>                                <C>                 <C>                 <C>                 <C>
Net income                         $   6,099,000       $   4,825,170       $   2,009,000       $   1,504,000
Earnings per share - basic         $        1.04       $        0.82       $        0.35       $        0.26
Earnings per share - diluted       $        1.02       $        0.80       $        0.34       $        0.25
</TABLE>

<TABLE>
<CAPTION>
                                                 1999
                                                 ----
                                    AS REPORTED          PRO-FORMA
                                   -------------       -------------
<S>                                <C>                 <C>
Net income                         $   2,200,000       $   1,389,000
Earnings per share - basic         $        0.38       $        0.24
Earnings per share - diluted       $        0.37       $        0.23
</TABLE>


                                       61
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 14 - EMPLOYEE BENEFIT PLANS, -(CONTINUED)

        A summary status of Patriot's option plans as of December 31, 2001,
2000, and 1999 and the charges during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                              2001                   2000                   1999
                                              ----                   ----                   ----
                                            WEIGHTED               WEIGHTED               WEIGHTED
                                            AVERAGE                AVERAGE                AVERAGE
                                       SHARES      PRICE      SHARES      PRICE      SHARES      PRICE
                                       -------     ------     -------     ------     -------     ------
<S>                                    <C>         <C>        <C>         <C>        <C>         <C>
Outstanding, beginning of year         667,100     $ 7.32     697,800     $ 7.42     659,500     $ 7.49
Granted                                 21,250       7.22      43,400       6.51      49,800       8.71
Exercised                              190,160       7.19          --         --       2,700       7.19
Canceled                                    --         --      74,100       7.74       8,800      12.75
                                       -------     ------     -------     ------     -------     ------

Outstanding at year-end                498,190     $ 7.36     667,100     $ 7.32     697,800     $ 7.51
                                       =======     ======     =======     ======     =======     ======

Options exercisable at year-end        405,512                460,950                379,000
                                       =======                =======                =======

Weighted average fair value of
   options granted during the year                 $ 4.19                 $ 2.02                 $ 4.95
                                                   ======                 ======                 ======
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model as follows:

<TABLE>
<CAPTION>
Assumptions:                 2001       2000       1999
                             ----       ----       ----
<S>                         <C>        <C>        <C>
 Dividend yield              3.94%      4.40%      2.40%
 Expected volatility        37.53%     36.33%     33.91%
 Risk-free interest rate     5.05%      5.11%      6.44%
</TABLE>

The following table summarizes information about non-qualified options
outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                        OPTIONS OUTSTANDING                            OPTIONS EXCERCISABLE
----------------------------------------------------------------  -----------------------------
                      NUMBER         WEIGHTED                        NUMBER
                   OUTSTANDING AT     AVERAGE         WEIGHTED    OUTSTANDING AT    WEIGHTED
     RANGE OF       DECEMBER 31,     REMAINING        AVERAGE      DECEMBER 31,     AVERAGE
 EXERCISE PRICES       2001      CONTRACTUAL LIFE  EXERCISE PRICE    2001        EXERCISE PRICE
-----------------     -------    ----------------  --------------   -------      --------------
<S>                <C>           <C>               <C>            <C>            <C>
          $  7.19     364,675       4.5 years       $    7.19       364,675       $    7.19
$ 12.00 - $ 15.88      20,000       6.5 years       $   12.99        12,000       $   12.99
$  7.26 - $ 11.75      48,920       7.5 years       $    8.69        19,568       $    8.69
$  6.19 - $  7.75      43,345       8.5 years       $    6.51         9,269       $    6.51
          $  7.22      21,250       9.5 years       $    7.22            --       $    7.22
</TABLE>

d. EMPLOYEE STOCK PURCHASE PLAN

        Patriot maintains an Employee Stock Purchase Plan (ESPP) which permits
eligible employees to purchase Patriot common stock directly from Patriot
through payroll deduction. Purchases of common stock are made at 90% of the
market value of Patriot common stock on the last day of each quarter. Purchases
are limited annually to $25,000 fair market value and shares are issued from
treasury stock. In 2001, 2000 and 1999, Patriot recorded expense of $5,391,
$11,518 and $9,318, respectively related to the ESPP.


                                       62
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001


NOTE 15 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK

        Patriot is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers,
including commitments to extend credit. Those instruments involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the consolidated Balance Sheets. The contract or notional amounts
of those instruments reflect the extent of Patriot's involvement in particular
classes of financial instruments.

        Patriot's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual notional amount of those instruments. Patriot
uses the same credit policies in making commitments and conditional obligations
as it does for on-balance-sheet instruments. Unless noted otherwise, Patriot
requires collateral to support financial instruments with credit risk.

The contractual or notional amounts of outstanding loan commitments as of
December 31, 2001, are as follows:

<TABLE>
<CAPTION>
                                                                                 Total
                                              Fixed rate     Variable rate    commitments
                                              commitments     commitments     outstanding
                                              -----------     ------------    -----------
                                                             (in thousands)
<S>                                           <C>            <C>              <C>
Financial instruments whose contract
      amounts represent credit risk
           Mortgage loans                      $ 9,401          $    --          $ 9,401
           Consumer and other loans                183           22,679           22,862
           Commercial lines of credit               --           29,379           29,379
           Commercial leases                     4,865               --            4,865
           Construction loans                   13,000               --           13,000
                                               -------          -------          -------

                     Total                     $27,449          $52,058          $79,507
                                               =======          =======          =======
</TABLE>

        Fees received in connection with these commitments are recognized as
income over the life of the commitment or the life of the loan.

        Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Patriot evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral obtained, if
deemed necessary by Patriot upon extension of credit, is based on management's
credit evaluation of the borrower. Collateral for commitments generally includes
residential real estate, commercial real estate, or business equipment related
to the lease.


                                       63
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 16 - COMMITMENTS AND CONTINGENCIES

a. LEASE COMMITMENTS

        Patriot is committed to various operating leases related to branch
facilities having initial or remaining terms in excess of one year. The minimum
annual rental commitments under these leases outstanding at December 31, 2001
are as follows (in thousands):

<TABLE>
              <S>                <C>
              2002 ..............  1,062
              2003 ..............  1,031
              2004 ..............    987
              2005 ..............    953
              2006 ..............    875
              Thereafter ........  8,516
                                  ------
                                  13,424
                                  ======
</TABLE>

Total rental expense for all leases for the year ended December 31, 2001, 2000,
and 1999 totaled $1,098,000, $1,901,000, and $681,000, respectively.

b. OTHER

        Patriot is a defendant in various legal actions arising from normal
business activities. Management believes that those actions are without merit or
that the ultimate liability, if any, resulting from such actions will not have a
material adverse effect on Patriot's consolidated financial position, results of
operations, or stockholders' equity.


                                       64
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

        Patriot is required to disclose the estimated fair value of Patriot's
assets and liabilities considered to be financial instruments. As with most
financial institutions, the majority of Patriot's assets and liabilities are
considered financial instruments. However, many of such instruments lack an
available trading market, as characterized by a willing buyer and seller
engaging in an exchange transaction. Therefore, Patriot has used significant
estimates and present value calculations to prepare this disclosure. Changes in
the assumptions or methodologies used to estimate fair value may affect the
estimated amounts.

        Estimates of fair value are made at a specific point in time based upon,
where available, relevant market prices and information about the financial
instrument. Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. For a substantial portion of the Company's
financial instruments, no quoted market exists. Therefore, estimates of fair
value are necessarily based on a number of significant assumptions (many of
which involve events outside the control of management). Such assumptions
include assessments of current economic conditions, perceived risks associated
with these financial instruments and their counterparties, future expected loss
experience, and other factors. Given the uncertainties surrounding these
assumptions, the reported fair values represent estimates only, and therefore
cannot be compared to the historical accounting model. Use of different
assumptions or methodologies are likely to result in significantly different
fair value estimates.

        The estimated fair values presented neither include nor give effect to
the values associated with the Company's banking, or other business, existing
customer relationships, extensive branch banking network, property, equipment,
goodwill, or certain tax implications related to the realization of unrealized
gains or losses. Excluding securities available for sale, it is Patriot's
general practice and intent to hold the preponderance of its financial
instruments to maturity and not to engage in trading or sales activities. The
fair value of non-interest-bearing demand deposits, savings, and NOW accounts
and money market deposit accounts is equal to the carrying amount because these
deposits have no stated maturity. Obviously, this approach to estimating fair
value excludes the significant benefit that results from the low-cost funding
provided by such deposit liabilities, as compared to alternative sources of
funding. As a consequence, the fair value of individual assets and liabilities
may not be reflective of the fair value of a banking organization that is a
going concern.

        Fair values have been estimated using data which management considered
the best available. Fair value of financial instruments actively traded in a
secondary market has been estimated using quoted market prices. The fair value
of loans receivable has been estimated using present value cash flow, discounted
at an interest rate that gives effect to estimated prepayment risk and credit
loss factors. Fair value of financial instrument liabilities with no stated
maturities has been estimated to equal the carrying amount. Fair value of
financial instrument liabilities with stated maturities has been estimated using
present value cash flow, discounted at a rate approximating current market rates
for similar assets and liabilities. The resulting estimated fair values and
carrying amounts at December 31, 2001 and 2000, respectively were as follows:


                                       65
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, - (CONTINUED)


<TABLE>
<CAPTION>
                                                                  2001                         2000
                                                   ----------------------------    --------------------------
                                                       ESTIMATED                     ESTIMATED

                                                         FAIR          CARRYING        FAIR          CARRYING
                                                         VALUE          AMOUNT         VALUE          AMOUNT
                                                        --------       --------       --------       --------
                                                                             (IN THOUSANDS)
<S>                                                     <C>            <C>            <C>            <C>
Financial Assets:
     Cash and cash equivalents ..................       $ 21,466       $ 21,466       $ 27,076       $ 27,076
     Securities available for sale ..............        247,612        247,612         84,889         84,889
     Securities held to maturity ................         43,078         43,637        299,685        302,489
     Loans held for sale and loans and
     leases receivable, net of allowances for
     credit losses ..............................        661,170        649,592        653,301        659,204
     Accrued interest receivable ................          3,988          3,988          5,125          5,125

Financial Liabilities:
     Deposits with no stated maturities .........        249,934        249,934        201,615        201,615
     Deposits with stated maturities ............        287,102        283,929        450,623        448,343
     Borrowings .................................        416,352        405,666        418,742        416,837
     Accrued interest payable ...................          2,552          2,552          2,308          2,308
</TABLE>

<TABLE>
<CAPTION>
                                                    2001                              2000
                                     --------------------------------   --------------------------------
                                                 ESTIMATED                          ESTIMATED
                                     NOTIONAL      FAIR      CARRYING   NOTIONAL      FAIR      CARRYING
                                      AMOUNT       VALUE      AMOUNT     AMOUNT       VALUE      AMOUNT
                                     --------    ---------   --------   --------    ---------   --------
                                                                  (IN THOUSANDS)
<S>                                  <C>         <C>          <C>       <C>         <C>         <C>
Off-balance sheet items:
Commitments to extend credit ...      79,507           23       --       68,966          129       --
</TABLE>


                                       66
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 18 - REGULATORY MATTERS

        Patriot is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possible additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on Patriot's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Patriot must meet specific capital guidelines that involve quantitative measures
of Patriots assets, liabilities and certain off-balance sheet items as
calculated under regulatory accounting practices. Patriot's capital amounts are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.

        Quantitative measures established by regulation to ensure capital
adequacy require Patriot Bank Corp. and Patriot Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and core capital (as defined
in the regulations) to risk-weighted assets, and of core capital to average
assets. Management believes, as of December 31, 2001, that Patriot meets all
capital adequacy requirements to which it is subject.

        As of December 31, 2001, the most recent notification from the
Department of Banking of the Commonwealth of Pennsylvania categorized Patriot
Bank as well capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized, Patriot Bank must maintain
minimum total risk-based, core risk-based and core leverage ratios as set forth
in the table. Patriot bank has voluntarily agreed with its regulators to
maintain capital ratios at least equal to well-capitalized standards and to
maintain a tier 1 leverage ratio of at least 6%. At December 31, 2001, Patriot
Bank met these ratio requirements. There are no conditions or events since that
notification that management believes have changed the institution's category.

<TABLE>
<CAPTION>
                                                                                                         TO BE WELL
                                                                            FOR CAPITAL               CAPITALIZED UNDER
                                                     ACTUAL               ADEQUACY PURPOSES       PROMPT CORRECTIVE ACTION
                                                     ------               -----------------       ------------------------
                                               AMOUNT      RATIO          AMOUNT      RATIO        AMOUNT          RATIO

                                                                           (IN THOUSANDS)
<S>                                           <C>         <C>            <C>         <C>          <C>             <C>
As of  December 31, 2001
   Total  capital (to risk weighted assets)

    Patriot Bank Corp.                        $74,178      11.54%         $51,442       8%         $64,302          10%
    Patriot Bank                               73,134      11.39%          51,355       8%          64,194          10%

    Tier I capital (to risk-weighted assets)

    Patriot Bank Corp.                         67,436      10.49%          25,721       4%          38,581           6%
    Patriot Bank                               65,976      10.28%          25,678       4%          38,517           6%

    Tier I capital (to average assets)

    Patriot Bank Corp.                         67,436       6.45%          41,821       4%          52,276           5%
    Patriot Bank                               65,976       6.31%          41,821       4%          52,276           5%
</TABLE>

        Patriot Bank is subject to regulations of certain regulatory agencies
and, accordingly, is periodically examined by such regulatory authorities. As a
consequence of the regulation of banking activities, Patriot Bank's operations
are susceptible to changes in legislation and regulations.


                                       67
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 18 - REGULATORY MATTERS, -(CONTINUED)

The following schedule summarizes the actual capital balances and ratios of
Patriot Bank at December 31, 2000:

<TABLE>
<CAPTION>
                                                                                                        TO BE WELL
                                                                            FOR CAPITAL              CAPITALIZED UNDER
                                                ACTUAL                    ADEQUACY PURPOSES      PROMPT CORRECTIVE ACTION
                                                ------                    -----------------      ------------------------
                                              AMOUNT      RATIO           AMOUNT      RATIO         AMOUNT        RATIO

                                                                           (IN THOUSANDS)
<S>                                           <C>        <C>             <C>         <C>          <C>            <C>
As of  December 31, 2000
   Total  capital (to risk weighted assets)

    Patriot Bank Corp.                        $68,671      10.41%         $52,786       8%         $65,983          10%
    Patriot Bank                               67,602      10.24%          52,797       8%          65,996          10%

    Tier I capital (to risk-weighted assets)

    Patriot Bank Corp.                         62,359       9.45%          26,393       4%          39,590           6%
    Patriot Bank                               61,019       9.25%          26,399       4%          39,598           6%

    Tier I capital (to average assets)

    Patriot Bank Corp.                         62,359       5.48%          45,533       4%          56,917           5%
    Patriot Bank                               61,019       5.36%          45,533       4%          56,917           5%
</TABLE>


        At the time of Patriot's initial public offering, a "liquidation
account" was established for Patriot Bank at its conversion to the stock form of
ownership. In the unlikely event of a complete liquidation of Patriot Bank,
holders of savings accounts with qualifying deposits, who continue to maintain
their savings accounts, would be entitled to a distribution from the
"liquidation account" in an amount equal to the then current adjusted savings
account balance before any liquidation distribution could be made with respect
to capital stock. The balance in the "liquidation account" was $6,196,000 at
December 31, 2001. This amount may not be utilized for the payment of cash
dividends to the holding company.

LIMITATION ON CAPITAL DISTRIBUTIONS. Dividend payments by the Bank to the
Company are subject to the Pennsylvania Banking Code of 1965 and the FDI Act.
Under the Pennsylvania Banking Code, no dividends may be paid except from
"accumulated net earnings" (generally, undivided profits). Under the FDI Act, no
dividends may be paid by an insured bank if the bank is in arrears in the
payment of any insurance assessment due to the FDIC. Under current banking laws,
the Bank would be limited to approximately $27.4 million of dividends in 2002
plus an additional amount equal to the Bank's net profit for 2002, up to the
date of any such dividend declaration.


                                       68
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION

Condensed financial information for Patriot Bank Corp. is as follows:


                CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                        DECEMBER 31,
                                                    ---------------------
                                                      2001          2000
                                                    -------       -------
                                                        (IN THOUSANDS)
<S>                                                 <C>           <C>
ASSETS
Cash and cash equivalents ...................       $   541       $    15
Loans to subsidiaries .......................           685            40
Investment in subsidiaries ..................        79,329        70,942
Other assets ................................         2,050           560
                                                    -------       -------
Total assets ................................       $82,605       $71,557
                                                    =======       =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities ...........................       $ 2,899       $   757
Trust Preferred Securities ..................        18,000        19,000
Stockholders' equity ........................        61,706        51,800
                                                    -------       -------
Total liabilities and stockholders' equity ..       $82,605       $71,557
                                                    =======       =======
</TABLE>

                CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                           --------------------------------------
                                             2001           2000           1999
                                           -------        -------        -------
                                                      (IN THOUSANDS)
<S>                                        <C>            <C>            <C>
Interest income ....................       $    24        $    11        $    85
Earnings of subsidiaries ...........         7,733          4,280          2,231
Other ..............................             9             --             --
                                           -------        -------        -------
           Total Income ............         7,766          4,291          2,316
Interest expense ...................         2,185          2,210          2,218
Other ..............................           321          1,235            504
                                           -------        -------        -------
           Total Expense ...........         2,506          3,445          2,722
Income (loss) before income taxes ..         5,260            846           (406)
Income tax benefit .................          (839)        (1,163)        (2,606)
                                           -------        -------        -------
           Net income ..............       $ 6,099        $ 2,009        $ 2,200
                                           =======        =======        =======
</TABLE>


                                       69
<PAGE>

                       PATRIOT BANK CORP. AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
                                DECEMBER 31, 2001

NOTE 19 - PARENT COMPANY FINANCIAL INFORMATION - (CONTINUED)

                 Condensed Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31,
                                                                    ----------------------------------------
                                                                      2001            2000            1999
                                                                    --------        --------        --------
                                                                                (IN THOUSANDS)
<S>                                                                 <C>             <C>             <C>
Cash flows from operating activities
           Net income .......................................       $  6,099        $  2,009        $  2,200
           Adjustments to reconcile net income to net cash
                provided by operating activities
                Earnings from subsidiaries ..................         (7,733)         (4,280)         (2,231)
                Dividends from subsidiaries .................          4,450           8,066          21,093
                Change in other assets ......................         (1,490)            (95)            184
                Change in other liabilities .................          2,142             467          (1,711)
                Release of MRP/ESOP Shares ..................            453             596             674
                                                                    --------        --------        --------
Net cash provided by operating activities ...................          3,921           6,763          20,209
                                                                    --------        --------        --------

Cash flows from investing activities
           Investment in subsidiary .........................         (1,646)         (5,074)        (13,701)
           Loans to subsidiary ..............................             --              95             (86)
                                                                    --------        --------        --------
Net cash used in investing activities .......................         (1,646)         (4,979)        (13,787)
                                                                    --------        --------        --------

Cash flows from financing activities
           Cash dividends paid to stockholders ..............         (2,334)         (1,913)         (1,683)
           Proceeds from the exercise of stock options ......            526              --              --
           Proceeds from the sale of stock associated with
               Employee Stock Purchase Plan .................             59             129              68
           Purchase of  treasury stock ......................             --              --          (4,808)
                                                                    --------        --------        --------
Net cash used in financing activities .......................         (1,749)         (1,784)         (6,423)
Increase (decrease) in cash and cash equivalents ............            526              --              (1)
Cash and cash equivalents at beginning of year ..............             15              15              16
                                                                    --------        --------        --------
Cash and cash equivalents at end of year ....................       $    541        $     15        $     15
                                                                    ========        ========        ========
</TABLE>


                                       70
<PAGE>

ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

N/A

              PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information relating to Directors and Executive Officers of the Registrant
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 23, 2002.

ITEM 11. EXECUTIVE COMPENSATION

The information relating to executive compensation and directors' compensation
is incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 23, 2002, excluding the Stock
Performance Graph and Compensation Report.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information relating to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 23, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information relating to certain relationships and related transactions is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 23, 2002.


                                       71
<PAGE>


              PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS.

Consolidated financial statements are omitted because the required information
is either not applicable, not required or is shown in the respective financial
statements or in the notes thereto.

    2. FINANCIAL STATEMENT SCHEDULES.

Financial statement schedules are omitted because the required information is
either not applicable, not required or is shown in the respective financial
statements or in the notes thereto.

(3) EXHIBITS

    (a) The following exhibits are filed as part of this report.

3.1  Certificate of Incorporation of the Patriot Bank Corp. (Incorporated by
     reference to Exhibit 3.1 to Patriot Bank Corp.'s Registration Statement No.
     333-650-45 on Form S-4.)

3.2  Bylaws of the Patriot Bank Corp. (Incorporated by reference to Exhibit 3.2
     to Patriot Bank Corp.'s Registration Statement No. 333-650-45 on Form S-4.)

10.1 Employment Agreement between Patriot Bank Corp. and Richard A. Elko dated
     February 22,2001, (Incorporated by reference to Patriot Bank Corp.'s 2000
     10K filed March 29, 2001.) ***

10.2 Employment Agreement between Kevin R. Pyle and Patriot Bank dated February
     22,2001, (Incorporated by reference to Patriot Bank Corp.'s 2000 10K filed
     March 29, 2001.) ***

10.3 Employment Agreement between Richard A. Elko and Patriot Bank dated
     February 22,2001, (Incorporated by reference to Patriot Bank Corp.'s 2000
     10K filed March 29, 2001.) ***

10.4 Employment Agreement between Joni S. Naugle and Patriot Bank dated February
     22,2001, (Incorporated by reference to Patriot Bank Corp.'s 2000 10K filed
     March 29, 2001.) ***

10.5 Employment Agreement between James G. Blume and Patriot Bank dated February
     22,2001, (Incorporated by reference to Patriot Bank Corp.'s 2000 10K filed
     March 29, 2001.) ***

10.6 The Patriot Bank Corp. 1996 Stock-Based Incentive Plan. (Incorporated by
     reference to Patriot Bank Corp.'s Proxy Statement for the 1996 Annual
     Meeting of Stockholders filed April 26, 1996).***

21.0 Subsidiaries.

23.1 Consent of KPMG LLP

*** Denotes a management contract or a compensatory plan or arrangement.

(B)  REPORTS ON FORM 8-K.

None.


                                       72
<PAGE>

              SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

                    PATRIOT BANK CORP

Dated: March 20, 2002       By /s/ RICHARD A. ELKO
                              -----------------------------
                            Richard A. Elko
                            President and Chief Executive Officer

Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
        NAME                        TITLE                        DATE
        ----                        -----                        ----
<S>                            <C>                           <C>
/s/ JAMES B. ELLIOTT           Chairman of the Board         March  20, 2002
------------------------
James B. Elliott

/s/ RICHARD A. ELKO            President and Chief           March 20, 2002
------------------------       Executive Officer and
Richard A. Elko                Director

/s/ LARRY V. THREN             Director                      March 20, 2002
------------------------
Larry V. Thren

/s/ JAMES A. BENTLEY, JR.      Director                      March  20, 2002
------------------------
James A. Bentley, Jr.

/s/ RUSSELL J. KUNKEL          Director                      March  20, 2002
------------------------
Russell J. Kunkel

/s/ THOMAS D. PAULUS           Director                      March 20, 2002
------------------------
Thomas D. Paulus

/s/ JAMES G. BLUME             Chief Financial               March 20, 2002
------------------------       Officer
James G. Blume
</TABLE>


                                       73